Softness in residential real estate prices continues

Softness in residential real estate prices continues with apartment prices faring better than villas

The latest data on Dubai’s residential real estate prices show that while apartment prices have stabilized on an annual basis in Jan-Oct 2017, villa prices have declined sharply in October. Phidar Advisory’s Dubai 9/5 House Price Index, which is based on DLD data but includes only nine apartment communities and five villa communities in investor zones in Dubai, showed that apartment prices were down -2.8% y/y in October after three consecutive months of positive growth, compared with -8.4% y/y in October last year. Villa prices fell -14.9% y/y in October. As demand appears to be stronger for the more affordable residential units, it is unsurprising that villas have lagged the recovery in apartment prices over the last year, as they are more expensive. 

While there is evidence that residential real estate prices may be stabilizing, higher interest rates, declining rents and increasing supply are likely to remain headwinds for the sector this year and next.  However, Phidar Advisory expects residential real estate prices to recover modestly in 2019 and rise further in 2020-2021.  

Dubai residential property prices 

Source: Phidar Advisory, Emirates NBD Research

Transaction volumes higher in Jan-Oct 2017 compared with Jan-Oct 2016

The slower contraction in residential real estate prices over Jan-Oct 2017 has been accompanied by higher transaction volumes in all areas of Dubai. This has been particularly evident in the apartments sector. Overall transaction volumes increased 4.3% y/y in Jan-Oct 2017 compared with -24.4% decline recorded in Jan-Oct 2016. Looking at the areas included in Phidar Advisory’s 9/5 Index, overall transaction volumes have fallen roughly -16.0% y/y in Jan-Oct 2017, mainly driven by the significantly lower transaction volumes on villas. 

Dubai residential transaction volumes (whole of Dubai)

Source: Phidar Advisory, Emirates NBD Research

Rents for apartments declined in October while yields remain high

The sharp decline in villa prices has not been mirrored in rents, although these declined somewhat as well in October. Overall however, yields on villas rose to 5.0% in October. Gross rental yields on apartments have moderated as prices have increased, but remain attractive by global standards at over 7.0%. 

Dubai residential rents

Source: Phidar Advisory, Emirates NBD Research

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