12
Dubai Residential Market Update Summer 2016 Core Research Dubai Property core-me.com
Dubai Residential Market Update Summer 2016
Core ResearchDubai Property
core-me.com
03core-me.com
Summer 2016
After a drop for seven consecutive quarters, Dubai’s overall sales market has finally witnessed a marginal 1% quarter-on-quarter rise in sales prices in Q2 2016. This slight recovery may be due to the higher closures that we witnessed during Ramadan, in anticipation of lower activity levels by the onset of summer. However, despite the traditional perception of a dampened buyer sentiment in summer, we saw the spike in both enquiry and activity levels of June continue over to July.
The growing pool of investors and end users who have been waiting on the sidelines for the last few quarters for sales prices to find their new floor are slowly going ahead with their buying instructions as the prices have hit a plateau across most of Dubai’s submar-kets and are showing resistance to further drops. Furthermore, landlords who wish to sell in this bottoming market are also keeping realistic reserve prices, thus bridging the gap and pushing transaction volumes up. However, a decisive revival in the overall market is too soon to predict as we expect the remainder of Q3 to actually bring in the delayed traditional “summer sluggishness” in activity levels. Nonetheless, we expect transactions to gather momentum again throughout Q4 2016 and into 2017, provid-ing there are no external shocks affecting the market sentiment.
Market overview
Supply
somewhat controlling sales prices in the off plan market.
The gulf between the expected supply pipeline and actual deliveries has been growing over the last few years, stemmed by a weakened demand, oversupply concerns, liquidity issues and a general delay in construction timelines. This substantial drop in deliveries is validated by the fact that just around 50% of the total expected stock was delivered in 2015 and only 35% of projected stock is expected to come to the market in 2016. This year to July saw the delivery of only about 3,000 units with villas amounting to just less than 20% of the total stock. Against this backdrop of contraction in deliveries, our conservative estimate of new supply for the remainder of the year hovers around 5,500 units. Most of the new stock, largely in the apartment segment, is focused in the newer areas of Dubai Silicon Oasis, Dubailand and Jumeirah Village and is primarily marketed with the ‘affordable housing’ tagline, although it may by price range qualify as middle-income housing.
ue to the softening market over the last 12 to 18 months, major developers have been cautiously aligning new stock and, in turn,
With the new metro extension connecting the main red line to the Expo site gathering pace, more transit-oriented development is unsurprisingly expected to arrive in the areas of DIP, Al Furjan and Jumeirah Village in the next few years. The current supply scenario echoes our sentiment, illustrated in previous publications, of a perceived shortage in prime residential, which is keeping prices across prime submarkets relatively stable.
Prominent villa communities expected to arrive this year are Mudon Villas and Jumei-rah Park Nova, while other key apartment developments include City Walk by Meraas in Jumeirah and Azure Residences by Nakheel on the Palm Jumeirah.
“The growing pool of inves-tors and end users who have been waiting on the sidelines for the last few quarters for sales prices to find their new floor are slowly going ahead with their buying instructions.”
04
Dubai Residential Market Update
After plummeting close to 45% from the 2008 peak, Dubai’s overall residential sales prices reached their trough in 2011. Construction activity started gathering pace from early 2012 as developers announced new projects and relaunched older ones that were affected during the global financial crisis. The residential sector started to show increasing signs of overheating with lease and sale rates rising far too quickly to be justified by the then prevailing economic environment. Mechanisms such as the increase in transfer fee and mortgage restrictions came into effect which cooled off speculation and bolstered regulations, although also rendering a drop in demand from many end users. These market dynamics have reflected critically on how developers have positioned stock over the course of the last five years.
Analysing the supply figures since 2011 to date, it becomes clear that the delay in deliveries has created a backlog of old supply which keeps spilling over to the following year - a trend evidenced by the fact that almost 40% of total expected stock is yet to be delivered to the market. During 2012-2014, the robust underlying demand was potent to fully absorb the new stock that was coming to market. However, as liquidity crunch manifested in the market exerting downward pressure on already tight margins, especially in mid and affordable developments, we continued to see a shift in developer sentiment from erstwhile timely delivery to cost control. This need to keep cost to a minimum has been driving delivery time-lines along with the growing need of aligning stock with demand which has been translating into recurring contractions in expected supply figures. This lag creates a penalising situation, particularly for the middle-income tenants who have bought a property in the off plan market as the tenants are subjected to both rent and mortgage installments. Nonetheless, these trends may not be reflective of the whole market as a few top developers delivering key flagship projects have stayed relatively on track to their delivery timelines.
The introduction of delay penalties, a practice prevalent in many international markets, may provide some relief to buyers – albeit, further impacting developer margins and their ability to align stock with demand. This paradox of delay in stock, however, has partially helped the market match demand and not fall further over the years.
GRAPH 1
New apartment supply - H2 2016
Dubai Silicon Oasis Dubailand
Jumeirah Village Marina
Others
25%
12%
9%6%
48%
Source: Core - UAE Associate of Savills research
GRAPH 2
Total stock delivered vs expected delivery 2011-H1 2016
Source: Core - UAE Associate of Savills research
0
20
40
60
80
100
120
140
Expectedsupply
Deliveredsupply
Contracting deliveries
GRAPH 3
Expected residential supply vs delivery
Source: Core - UAE Associate of Savills research
0 5 10 15 20 25 30
2011
2012
2013
2014
2015
2016 E
Delivered supplyTotal expected supply Conservative supply estimate 2016Cumulative spill over supplyNew expected supply
Supply in multiples of 1,000 units
Sup
ply
in m
ultip
les
of 1
,000
uni
ts
GRAPH 4
Source: Core-UAE Associate of Savills research
Change in sales prices - Q1 2016 vs Q2 2016 Sales market
Despite an early onset of Ramadan followed by summer, the enquiry levels were atypically high throughout June and July translating into a marginal upturn in overall villa and apartment sale prices. Residential transac-tion volumes in Q2 2016 saw a significant 5% rise from Q1 2016 figures, although they were 15% behind Q2 2015 numbers.
Upon closer scrutiny into each villa submar-ket, The Springs and The Meadows demon-strated a recovery with a 3% quarter-on-quarter increase from an overall 7% year-on-year drop, making it the highest performing villa district within Dubai. The efficient layouts and attractive yields in these fast moving villa districts have attracted both investors and end users alike. As expected, the prime residential submarkets of Emirates Hills and Palm Jumeirah have remained steady along with Jumeirah Park, Arabian Ranches, Green Community and Dubailand which remained flat throughout Q2 and mid- Q3.
Mirroring our previous forecast, Al Barari’s location has weighed down on its sales priceas the submarket witnessed a 3% drop, despite newer and better quality stock. The Lakes faced competition from its larger neighbours, The Springs and The Meadows, as it offers similar layouts for an almost 20% higher price. The villas in Jumeirah witnessed a 2% quarter-on-quarter drop, owing to lower enquiry levels - an effect amplified by its less liquid market due to the ownership regulations, although statistically negligible. Nonetheless, we saw traction from other GCC buyers as they are increasingly looking to park funds in this regional stronghold. Jumeirah is also gaining popularity from international buyers for the new freehold opportunities of land plots that have been recently released along with upcoming low rise developments such as City Walk.
With new villa developments coming to the market that are juxtaposed against a backdrop of weakening demand, Jumeirah Village witnessed a drastic 5% quarter-on-quarter and 17% year-on-year drop, positioning it as the weakest perform-ing villa district in Dubai.
In the apartment submarkets, Discovery Gardens was the only district which saw its sales prices rise by 4% quarter-on-quarter, a spike attributed to its lower entry levels and higher yield prospects offered by its studio and one bedroom units in an established rental market. Other major apartment districts such as Downtown, Business Bay,
Villa
Apartment
The Springs and The Meadows 3%Dubai Sports City 2%
DiscoveryGardens 4%
Emirates HillsPalm JumeirahJumeirah ParkArabian RanchesGreen CommunityDubailand
The Lakes 2%Jumeirah 2%Al Barari 3%Jumeirah Village 5%
DowntownBusiness BayDubai MarinaJLTThe ViewThe Greens
DIFC 2%Palm Jumeirah 2%Jumeirah Village 5%
Dubai Marina and JLT remained stable as steady demand and a lack of any new supply kept sales prices static. However, prime apartment districts at DIFC and Palm Jumeirah experienced a 2% quarter-on-quarter drop in sales prices. Transaction volumes have dipped in these locations as end user buyers, who are largely mid to upper management execu-tives, are hesitant to own given the increas-ing job uncertainty whilst cash rich investors are not pushed to exit in a bottoming market. The sharpest drop was witnessed by Jumeirah Village apartments, mirroring
the performance of its villa sales market with an identical 5% drop.
In the off plan market, buyer decision making continues to be driven by developer profile. Established developers are finding takers for competitively priced products, especially nearing completion. A prime example of this trend is the freehold project of City Walk in Jumeirah which is witnessing robust absorption.
05core-me.com
Summer 2016
06
Dubai Residential Market Update
Sales price index
Displaying higher overall variation in indices, The Springs and The Meadows district started recover-ing from mid - Q1 2016 and demonstrated an overall drop of only 5 points from its 2014 peak. A central location and an established rental market have kept the units in demand from both investors and end-us-ers in this submarket.
Prime villa districts Emirates Hills and Palm Jumeirah displayed a less marked drop than the average market over the last 12 months as demand for prime central properties in these iconic locations continues to be relatively steady. On the other hand, Jumeirah Village and Dubailand villas demonstrated a higher differential of around 13-15 points as existing stock absorption continues to face downward pressures from a raft of new mid to lower level stock that is being brought to the market.
Both The Lakes and Arabian Ranches saw higher closures at the lower end of the market while the latter faced additional downward pressure from newer villa stock coming to the same submarket such as Casa and Palma, thus demonstrating the highest drop of 16 points.
Apartments in Dubailand did not mirror its villa submarket sentiment as most of the existing apartment units were launched at competitive entry points over the last two to three years keeping the index relatively flat. Discovery Gardens demonstrated a revival over the last quarter as investors aiming for high yields through the mechanism of bulk deals have returned to this submarket.
Apartments in Palm Jumeirah and Business Bay followed the overall market average trends. JLT is increasingly facing competition from a better located Dubai Marina as the sharp drop in Dubai Marina prices have bridged the erstwhile significant gap between both these submarkets. Downtown and Dubai Marina witnessed identical trends and have seen the highest drop, both 17 points lower than their 2014 peak. As many of the Downtown projects were launched directly during the rise up to the 2014 peak, second hand sales have not been able to generate similar sales prices. Dubai Marina on the contrary saw many mid -segment developments being launched over the last few quarters which along with lower demand has dropped the area average. Source: Core-UAE Associate of Savills research
Apartment sales price index*GRAPH 6
80
85
90
95
100
105
*Ind
ex B
ase
100
= S
ep 2
014
Downtown Discovery Gardens
JLT Business Bay
Dubai Marina
Jumeirah Village
Palm Jumeirah
Dubailand
Sep
-14
Oct
-14
No
v-14
Dec
-14
Jan-
15
Feb
-15
Mar
-15
Ap
r-15
May
-15
Jun-
15
Jul-
15
Aug
-15
Sep
-15
Oct
-15
No
v-15
Dec
-15
Jan-
16
Feb
-16
Mar
-16
Ap
r-16
May
-16
Jun-
16
Jul-
16
Villa sales price index*GRAPH 5
Source: Core-UAE Associate of Savills research
80
85
90
95
100
105*I
ndex
Bas
e 10
0 =
Sep
201
4
Emirates Hills Palm Jumeirah Al Barari
The Lakes The Springs and The Meadows Arabian Ranches
Dubailand Jumeirah Village
Sep
-14
Oct
-14
No
v-14
Dec
-14
Jan-
15
Feb
-15
Mar
-15
Ap
r-15
May
-15
Jun-
15
Jul-
15
Aug
-15
Sep
-15
Oct
-15
No
v-15
Dec
-15
Jan-
16
Feb
-16
Mar
-16
Ap
r-16
May
-16
Jun-
16
Jul-
16
Index methodologyThe overall Dubai residential sales market peaked at the end of Q3 2014 and the prices have witnessed consecutive drops ever since in most of the districts. To compare the relative deviation in prices across prominent submarkets, we have benchmarked each residential area’s September 2014 price as the index base of 100.
07core-me.com
Summer 2016
Rental market
Source: Core - UAE Associate of Savills research
GRAPH 7
Change in Rents - Q1 2016 vs Q2 2016
Villa
Apartments
None
None
Jumeirah ParkThe LakesThe Springs and The MeadowsArabian RanchesGreen CommunityJumeirah Village
Emirates Hills 2%Palm Jumeirah 2%Sport City 3%Dubailand 3%Al Barari 4%
DIFCThe GreensDowntownDubai MarinaPalm JumeirahBusiness BayJumeirah Village
JLTJBRThe Views
Discovery Gardens2%
Comparing changes in rents and sales prices over Q1 and Q2 2016, a few of the villa submarkets surprisingly saw a sharper drop in rents despite stable sales prices in their respective markets. This drift may be due to the current subdued rental activity as new jobs and thus need for new leases and renewals have historically been fewer during summer months while sales activity defied historic trends by picking up pace over Q2 2016, owing to renewed interest by the bottoming sales prices.
We expect this opposing behavior of both the rental and sales markets to be only in the interim and foresee the rents to go back to echoing the sales prices, albeit with a lag.
While none of the residential districts displayed a rise in rents, most of the prominent mid-segment villa submarkets remained flat. Prime villa submarkets such as Emirates Hills and Palm Jumeirah witnessed a insignificant 2% quarterly drop in rents as limited rental transactions were concluded in this high ticket size districts. Owing to its much smaller villa community and fewer leases, a clear trend in Al Barari’s rental market could not be derived. Dubailand saw its villa rents dip by 3% quarter-on-quarter due to better lease terms offered by other central villa districts. A similar trend of plateauing rents was echoed across the rental market in most of the apartment districts with only Discovery Gardens displaying a 2% quarterly drop.
Contracting housing allowances, increased utility spending and a sentiment of job uncertainty are pushing tenants to reflect on their rental choices, with many of them now able to negotiate on lower rents in leaserenewals.
“Contracting housing allow-ances, increased utility spending and a sentiment of job uncertainty are pushing tenants to reflect on their rental choices, with many tenants able to now negoti-ate on lower rents in lease renewals..”
08
Dubai Residential Market Update
Source: Core - UAE Associate of Savills research
Source: Core-UAE Associate of Savills research
GRAPH 8
Dubai villa yields
0% 1% 2% 3% 4% 5% 6% 7%
Emirates Hills
Palm Jumeirah
Al Barari
Jumeirah Park
The Lakes
The Springs and The Meadows
Arabian Ranches
Sports City
Green Community
Dubailand
Jumeirah Village
Yield
Q2 2016 Q1 2016 Q2 2015
GRAPH 9
Dubai apartment yields Q2 2016 Q1 2016 Q2 2015
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%
DIFC
The Greens
Downtown
Discovery Gardens
Dubai Marina
Palm Jumeirah
JLT
JBR
The Views
Business Bay
Jumeirah Village
Dubailand
Yield
Residential yields
Headline yield levels remain almost unaltered over the course of 2016. The Springs and The Meadows continue to hold the position of the most stable villa investment district as yields have been steadily above 6% owing to its central location, active rental market and lower service charges.
Arabian Ranches demonstrated a mechanical spike of 1% in yields as sales prices dropped further in comparison to rents. Although this effect may be mitigated in the near term as we foresee price stabilisation while rents should lag in their negative adjustment. Upcoming mid to low segment villa districts - Dubailand and Jumeirah Village - also offer yields above 6% due to lower entry points and relatively competitive rentals, however, these districts are yet to witness an entire real estate cycle which established villa locations have already sustained. Nonetheless, once fully complete, we expect the mid-segment villas in Jumeirah Village to emerge as a good investment due their relatively central location and newer layouts.
Investor driven mainstream apartment districts such as Discovery Gardens continue to provide higher returns at around 10%, particularly for bulk portfolios. However, in the midterm we expect a flight to quality to newer stock in neighbouring areas of Al Furjan and Jumeirah Village to exert downward pressures on Discovery Gardens.
Single community management and a stable rental market has kept The Greens as a steady apartment district with yields consist-ently above 8%. One the contrary, JLT contin-ues to be a largely Grade B market with the low priced apartments yielding higher than the area average due to the nominal rental differential amongst units.
09core-me.com
Summer 2016
Prime apartment locations
Mainstream apartment locations
Apartments
Area outlook (sales market)
Prime villa locations
Mainstream villa locations
Villa
Residential districts Current market condition Overall mid-term outlook(3 to 5 years)
Emirates Hills
Palm Jumeirah
Al Barari
The Lakes
The Springs / The Meadows
Arabian Ranches
Dubailand
Jumeirah Village
Palm Jumeirah
Dubai Marina
Downtown
Business Bay
JLT
Discovery Gardens
Jumeirah Village
Bright outlookCloudy outlook.
Rainy outlook.
Mostly bright, outllook with partial deterrents
Mixed outlook. Many deterrents
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As one of the largest UAE property services �rms, Core, UAE Associate of Savills, combines expert local market insight with the interna-tional strength provided by 700 of�ces globally.
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This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Core, UAE Associate of Savills, accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Core’s research team. © Core Real Estate Brokers.
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