The big question is will the same strategies work for developers in 2018
One of the key trends of Dubai’s residential real estate market in 2017 was the rise in off-plan sales, which comprised two-thirds of all homes purchased. Even though residential transaction volumes for existing properties were flat as compared to 2016, the rise of off-plan drove the total residential transaction volumes up by 15 per cent.
Based on the ValuStrat Price Index — Residential (VPI), we found that residential capital values for existing freehold properties declined 2 per cent annually, and are now 15 per cent below their 2014 peaks. However, deeper analysis of sub-markets reveals that not all areas performed equally.
Our data shows that while locations such as Jumeirah Lake Towers, Dubai Marina and apartments in Jumeirah Village saw price declines of up to 9.1 per cent, while apartments in Downtown Dubai, Business Bay, Discovery Gardens, Motor City, and villas in Jumeirah Village witnessed capital appreciation of 6.3 per cent to 8.1. Interestingly, as the market approached the year-end, we found that typically high yielding, mid-affordable areas such as International City, Discovery Gardens and Motor City saw prices dip slightly, whereas prime locations continued to gain.
For less than Dh500,000, buyers have a choice of grabbing a one-bedroom apartment in International City, a studio in Discovery Gardens or Production City (formerly IMPZ). At the high end of the spectrum, Dh5 million to Dh10 million buys a four-bedroom villa in Jumeirah Islands, a three-bedroom villa on Palm Jumeirah, or a six-bedroom villa in Arabian Ranches.
Falling residential rents are one reason for softening capital values — as investors faced lower yields on the back of deteriorating leasing rates. Asking rents were down 10 per cent on average, as many landlords worked to maintain occupancy levels with rent reductions and easier payment plans.
On average, studio apartments in International City could rent for Dh30,000 annually, and a one-bed for Dh42,000. Dubai Marina now has average three-bedroom apartments command rents of Dh180,000, which is similar to that for a three-bed villa in Arabian Ranches, causing families to make the move further east.
New-build supply was another reason for softer residential sales prices in 2017. An influx of new residential stock, some after delays of up to two years, was handed over. With many of these new homes targeted at the mid-affordable market, areas located along the E311 corridor such as International City, Dubai Silicon Oasis and Dubailand were most impacted.
This year can be described as a buyer’s market, driven mainly by off-plan developers offering competitive payment plans, many of which spanned beyond promised handover dates. As to who the buyers were, our research shows there was a shift towards domestic end users rather than investors. These end users earn locally and are less impacted by international currency fluctuations.
Developers have increasingly moved into home financing, offering innovative self-funded payment plans directly to their purchasers, outside of the traditional mortgage market. While such schemes have likely opened up home ownership in Dubai to a wider market, less stringent credit checks as compared to traditional bank mortgage applications, may represent some downside risk for future payment defaults.
Such a scenario could possibly expose some developers who are dependent upon stage payments to fund project construction.
Short-term downward pressures
Prime residential areas, which saw slight improvements in 2017, may continue to show resilience and sales prices could rally towards previous market peaks. Capital values for some high-yielding mid-affordable areas may experience short-term downward pressures as a result of burgeoning supply, extending the prevailing buyer’s market.
Citywide rents are anticipated to see further reductions, particularly in areas with handovers of long overdue deliveries, mostly located within the E311 corridor. Projects include Living Legends (in Dubailand), The Villages (Dubai South), Hayat Townhouses (Town Square) and Mudon Villas (Dubailand).
By the end of 2018 the population of Dubai is expected to reach 3.24 million, and assuming all projects are delivered on time, the number of residential units would reach 580,000 homes.
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Originally published in http://gulfnews.com/business/property/a-year-when-off-plan-trumped-everything-else-1.2147640