A huge supply of apartments and villas is expected to bring down rents in 2016, consultancy Asteco said in its latest Dubai market forecast on Sunday.
Around 22,000 apartments and 7,700 villas are scheduled to be delivered this year compared to 13,500 apartments and 800 villas added to Dubai's residential supply in 2015.
Last year saw developers offering more affordable homes after it became evident that there was a gap in this market sector. But the reality is that most affordable homes were overpriced for a large majority of Dubai's residents and, hence, were snapped up by investors.
"If we look to the medium and long term, the outlook is more positive with demand more than likely to grow in line with the progress of key infrastructure projects currently under way, such as Dubai World Central airport and Expo 2020," said John Stevens, managing director, Asteco.
Sales market performance
Residential sales recorded across-the-board declines in 2015, with villa sales prices down year on year by 11 per cent and apartments by eight per cent. Villas on the Palm Jumeirah recorded price declines of 13 per cent, dropping to Dh2,475 per square foot on average and The Meadows was also down 15 per cent to Dh1,150.
End users, rather than investors, were the predominant buyers of villas and townhouses, with a clear preference for smaller two-, three- and four-bedroom units, rather than large villas.
New communities such as Mudon and Arabian Ranches phase 2 saw improved levels of activity, offering better-priced yet good quality alternatives to some of the more established areas.
At the higher end of the apartment market, Jumeirah Beach Residence was down 16 per cent to Dh1,370 per square foot and apartments on the Palm Jumeirah dropped 14 per cent to Dh1,720 per square foot on average.
Villa rents were down nine per cent on average year on year, but Al Barsha recorded an increase for three-bedroom villas, up 9.2 per cent to Dh213,000 per annum while in Mirdif, similar properties rose 4.2 per cent to Dh138,000.
The biggest falls came in Jumeirah and Umm Suqeim where three-bed villas dropped more than Dh50,000 or 20 per cent on average to hit Dh195,000, while larger four-bedroom homes in Arabian Ranches and Jumeirah Park were also down 19 per cent to Dh243,000 and 15.5 per cent to Dh145,000, respectively.
"With fresh new supply entering the market, this is forcing property owners, especially of older independent villas, to become increasingly competitive on pricing," Stevens said.
With supply handover slower than anticipated in 2015, apartment rents remained broadly stable over the year, dipping just one per cent on average, although there were disparities between different areas.
Apartment rents were down by four per cent on average, with Sheikh Zayed Road recording the highest drop of over 12 per cent. Dubai Marina and Palm Jumeirah both saw a year-on-year dip, with a one-bedroom apartment dropping 13.3 per cent to Dh98,000 and 10 per cent to Dh135,000, respectively.
"For property owners, adjustments in terms of rental expectations and payment flexibility will have to be made. In cases of increased supply, better quality, well-managed or value-for-money properties will be able to achieve higher occupancy levels," added Stevens.
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