observer dubai market report q4 / 2018

OBSERVERDubai Market ReportQ4 / 2018

Price Movements

Apartments

Apartments

Volumes

Volumes

Villas

Villas

Values

Values

Rental Movements

Completed Unit Transactions

Off-Plan Unit Transactions

Report HighlightsServices

The performance of Dubai’s residential sector during the fourth quarter of 2018 saw a further decline in both sales and rental values which was mainly attributable to the increasing excess supply being released to the market. However, UAE Government departments recently announced a number of new initiatives, both legal and financial, which will have a knock on effect on the real estate market. These include the removal of the 20% cap on an individual bank’s real estate lending as a percentage of its total deposits.

In terms of a potential market recovery, unless there is a significant decline in construction activity, a boost in population and further economic stimulus created in the short term, it is unlikely the real estate market will reach a demand and supply equilibrium in the near future. Sales Prices The downward price corrections witnessed throughout 2018 continued in Q4, albeit at a slightly slower pace than witnessed in Q3. Average apartment sales prices were down 5% from the previous quarter, whilst average villa prices were down 3% from Q3. With regards to year-on-year performance, apartment sales prices were down 16% from 2017 whilst villa sales prices declined by 13% from 2017.

Rental Rates In Q4, as in previous quarters, we continued to witness downward pressure on rents. This was a consequence of additional supply being added to the market, thus offering more choice

to potential tenants. Average rents saw a further 4% decrease in the apartment market and a 3% decrease for villas from Q3. Year-on-year performance for apartments saw average rents decline by 12% from 2017, with villa rental rates decreasing 8% from the previous year.

Transactions From Q3 to Q4 2018, the number of transactions in relation to completed units increased by 22%, whilst for off-plan units the number of transactions increased by 33% from the previous quarter – a significant uplift from Q3 which saw downward adjustments of 11% and 31% respectively. Year-on-year performance in terms of transactional volumes saw a 7% uplift for completed units and a 13% decrease for off-plan units from the previous year. Transaction values for completed units witnessed a 9% increase from 2017 whilst values for off-plan units decreased by 14% which would suggest buyers are less confident about the off-plan sales market.

Market Outlook We expect sales prices and rents to continue softening into 2019 as supply continues to enter the market – something which is unlikely to change in the run up to Expo 2020. We also anticipate a limited number of new off-plan launches, which is likely to mean that the majority of transactions over the next 12 months will relate to completed units.

Read about our key residential market trends for 2019 on pages 10 and 11.

ValuationsMortgage and Secured LendingPortfolio Valuations

Advisory and ResearchFinancial FeasibilitiesHighest and Best Use StudiesMarket ResearchConceptual Advisory and Project Positioning Studies Project Redevelopment/Repositioning Advisory Investment Strategies – Acquisition and Disposal

Sales and LeasingCommercialIndustrialResidentialRetail

Property/Facilities Management CommercialMixed-UseResidential

International Properties London Off-Plan ResidentialInternational Homes and Investments International Relocations

Residential Market Q4 2018 Snapshot

QoQ −5%YoY −16%

QoQ −4%YoY −12%

QoQ +22%YoY +7%

QoQ +33%YoY −13%

QoQ −3%YoY −13%

QoQ −3%YoY −8%

QoQ +9%YoY +9%

QoQ +31%YoY −14%

The Observer - Dubai Residential Q4 2018 1

Apartments − Residential Sales Prices and Quarterly Change

Completed units continue to prove popular due to increased affordability

Villas − Residential Sales Prices and Quarterly Change

HOT TOPIC In late 2018, the UAE Central Bank announced the removal of the 20% cap of an individual bank’s real estate lending as a percentage of its total deposits, which is to be replaced with a more flexible policy. The cap was brought in, not only in the UAE but across the GCC, to limit financial institutions’ exposure to real estate and illiquid assets and to minimise soaring bad debt provision. It appears the control mechanism is to be lifted to facilitate banks to extend their lending, which is likely to have a further positive impact on transaction dynamics.

Apartments: Quarter-on-Quarter movement: (–5%)Year-on-Year movement: (–16%)

The downward price corrections witnessed throughout 2018 continued in Q4, albeit at a slightly slower pace than witnessed in Q3. Average apartment sales prices were down 5% from the previous quarter, while average villa prices were down 3% from Q3.

Apartments in areas such as Dubai Marina, Dubailand, Discovery Gardens and Dubai Silicon Oasis continued to remain resilient, with the former experiencing a 1% decline from the previous quarter and the latter three locations witnessing 2% declines since Q3. The highest declines were seen in International City, Dubai Sports City and JVC, all with a 9% decrease in prices since Q3.

There are secondary areas where existing stock hassuffered due to the increasing amount of affordableunits now available across Dubai which is adding further pressure to sales prices.

The largest year-on-year price decline for apartments was seen in Discovery Gardens with a 25% drop from 2017. The most resilient apartment location was Dubailand with just a 5% adjustment from the previous year.

Villas: Quarter-on-Quarter movement: (–3%)Year-on-Year movement: (–13%)

The villa communities of The Meadows and The Springs displayed the most resilience with no price declines since

Q3. Arabian Ranches and Jumeirah Park trailed close behind with just a 1% and 2% decline respectively. The biggest decline was seen in Palm Jumeirah with a 7% drop from Q3.

The biggest year-on-year price decline for villas was in Palm Jumeirah with a 15% drop from 2017 and the most resilient villa locations were The Meadows and The Springs with a 12% adjustment from the previous year. It is clear that capital depreciation has been fairly even across the villa communities as villas were the first to feel the negative effects of the oil price declines in H2 2014. During Q3 2018, there was a higher decline in off-plan sales as opposed to completed units. We predicted in our Q3 Observer report that due to increased affordability, completed unit transactions would increase over the coming quarters. In Q4 we saw an increase of 22% in transaction volumes over Q3 and a 7% uplift across 2018 as a whole.

In 2017, 35% of all residential transactions were related to completed units. In 2018, this figure increased to 41%, so it is clear there has been a shift in buyers’ interests. The lower number of off-plan launches, coupled with the increased affordability of units available to occupy has motivated some buyers to consider properties that are move-in ready.

However, overall, off-plan sales are still dominating the market, with buyers enticed by attractive incentives including 5-year post-handover payment plans, rebates of registration fees and guaranteed rental returns.

-10%

-9%

-8%

-7%

-6%

-5%

-3%

-4%

-2%

-1%

0%

Business Bay DiscoveryGardens

Downtown Dubailand Dubai Marina Dubai MotorCity

Dubai SiliconOasis

Dubai SportsCity

InternationalCity

JLT JVC The Greens The Views

PERCENTAG

E CHAN

GEAE

D S

ALES

PRI

CES

Figures in AED/Sq FtSource: REIDIN & Chestertons Q2 2018Q1 2018 Q3 2018 Q4 2018

1,22

6 1,

178

753 79

2

1,68

0 1,

683

760

757

1,32

0 1,

320

822

807

730

729

941

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1

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871

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652

636

1,64

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740

725

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713

716

704

875

793

566

516

1,02

7 97

7

831

759

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3 96

5

1,27

2 1,

209

QoQ Movement

-8%0

500

1,000

1,500

2,000

2,500

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

Arabian Ranches Jumeirah Park Palm Jumeirah The Lakes The Meadows/The Springs

Figures in AED/Sq FtSource: REIDIN & Chestertons

PERCENTAG

E CHAN

GEAE

D S

ALES

PRI

CES

Q2 2018Q1 2018 Q3 2018 QoQ Movement

923

942

846

840 96

0

985

883

868

2,29

8

2,20

5

2,18

7

2,03

5

1,19

5

1,20

4

1,14

8

1,10

3

991

988

935

936

Q4 2018

-10%

-9%

-8%

-7%

-6%

-5%

-3%

-4%

-2%

-1%

0%

Business Bay DiscoveryGardens

Downtown Dubailand Dubai Marina Dubai MotorCity

Dubai SiliconOasis

Dubai SportsCity

InternationalCity

JLT JVC The Greens The Views

PERCENTAG

E CHAN

GEAE

D S

ALES

PRI

CES

Figures in AED/Sq FtSource: REIDIN & Chestertons Q2 2018Q1 2018 Q3 2018 Q4 2018

1,22

6 1,

178

753 79

2

1,68

0 1,

683

760

757

1,32

0 1,

320

822

807

730

729

941

957

589 63

1

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2 1,

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871

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1,34

2 1,

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652

636

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716

704

875

793

566

516

1,02

7 97

7

831

759

1,03

3 96

5

1,27

2 1,

209

QoQ Movement

-8%0

500

1,000

1,500

2,000

2,500

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

Arabian Ranches Jumeirah Park Palm Jumeirah The Lakes The Meadows/The Springs

Figures in AED/Sq FtSource: REIDIN & Chestertons

PERCENTAG

E CHAN

GEAE

D S

ALES

PRI

CES

Q2 2018Q1 2018 Q3 2018 QoQ Movement

923

942

846

840 96

0

985

883

868

2,29

8

2,20

5

2,18

7

2,03

5

1,19

5

1,20

4

1,14

8

1,10

3

991

988

935

936

Q4 2018

The Observer - Dubai Residential Q4 2018 2 The Observer - Dubai Residential Q4 2018 3

Apartments − Residential Market Rent and Quarterly Change

Tenants re-negotiate or re-locate to make savings on their annual rent

Villas − Residential Market Rent and Quarterly Change

As in previous quarters, we witnessed continued downward pressure on rents in Q4. This was a consequence of additional supply being added to the market, thus offering more choice to potential tenants. Average rents have seen a further 4% decrease in the apartment market and a 3% decrease for villas from Q3.

As a result of these adjustments, many tenants are making significant savings on their annual rents by either re-negotiating with their current landlords on price and terms, re-locating within their existing district or moving out to a cheaper location. Landlords have had to become increasingly flexible as the market becomes more competitive.

Apartments: Quarter-on-Quarter movement: (– 4%)Year-on-Year movement: (– 12%)

In the apartment market, the biggest declines were seen in Dubai Marina, Dubai Silicon Oasis, Dubai Sports City, Dubailand and International City – all of which saw 5% declines from Q3. Established communities, offering good facilities at affordable rents such as DIFC, Business Bay and Discovery Gardens witnessed a small movement with a 1% decline from Q3.

Year-on-year figures show that DIFC was the most resilient location to rental declines most likely due to its unique positioning within the CBD where limited new stock has been added.

As noted in our Q3 Observer report, there is an increasing stock of smaller format apartments and studio apartments which

appear to be most affected by market adjustments. There has been a year-on-year recorded drop of 16% for studios followed by a year-on-year 12% rental decrease for 1 bedroom units.

Villas: Quarter-on-Quarter movement: (– 3%)Year-on-Year movement: (– 8%)

In the villa market, the biggest average rental decline was seen in Al Furjan at 7% from Q3 with the most resilient locations being Palm Jumeirah, Jumeirah Islands, The Lakes and The Springs with declines of 1% from Q3.

Year-on-year, the biggest average rental adjustments were seen at Palm Jumeirah and Al Furjan – both with a 13% drop from 2017. The most resilient locations in 2018 were JVT, Jumeirah Golf Estates and The Lakes witnessing 4% declines from the previous year.

Due to additional stock being available and limited new demand, landlords have had to compete, not only on rental rates but have had to introduce incentives to attract and retain tenants. These incentives include multiple rent cheques, some of which even extend to monthly payments, as well as rent-free periods. Other incentives have included the waiver of security deposits, multiple cheques to cover utility bills, short-term leases and in some cases we have witnessed landlords covering the cost of agency fees.

We expect rents to continue softening into 2019 as a consequence of additional supply being added to the market where tenants are now seeing better value for money and greater levels of availability across the board.

HOT TOPIC Another potential change to the rental sector in Dubai is the holiday let market which has been legal in the Emirate since 2016. As landlords tackle weak demand for annual contracts and falling rents, short term holiday rentals could prove very lucrative, especially in popular locations, particularly in the run up to Expo 2020.

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

-

50,000

100,000

150,000

200,000

250,000

Studio 1BR 2BR 3BR QoQ Change

Business Bay DIFC DiscoveryGardens

DowntownDubai

Dubai Marina DubaiSilicon Oasis

Dubai Sports City

Dubailand InternationalCity

JLT JVC The Greens The Views DubaiMotor City

PERCENTAG

E CHAN

GEAE

D R

ENTA

L PR

ICES

Figures in AED/Sq FtSource: Propertyfinder & Chestertons

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

ArabianRanches

TheSprings

TheMeadows

The Lakes VictoryHeights

Al Furjan JVT JumeirahIslands

JumeirahGolf Estates

PalmJumeirah

2BR 3BR 4BR 5BR QoQ MovementFigures in AED/Sq FtSource: Propertyfinder & Chestertons

AED

REN

TAL

PRIC

ES

PERCENTAG

E CHAN

GE

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

-

50,000

100,000

150,000

200,000

250,000



DowntownDubai


Dubai Sports City



PERCENTAG

E CHAN

GEAE

D R

ENTA

L PR

ICES


-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

ArabianRanches

TheSprings

TheMeadows




PalmJumeirah


AED

REN

TAL

PRIC

ES

PERCENTAG

E CHAN

GE

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

-

50,000

100,000

150,000

200,000

250,000



DowntownDubai


Dubai Sports City



PERCENTAG

E CHAN

GEAE

D R

ENTA

L PR

ICES


-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

ArabianRanches

TheSprings

TheMeadows




PalmJumeirah


AED

REN

TAL

PRIC

ES

PERCENTAG

E CHAN

GE


Completed unit transactions displayed increasing resilience in Q4

HOT TOPIC Interest rate hikes could pose a potential threat to investors in the UAE. In October 2018, the FED increased interest rates by 25 basis points – with another hike taking place in December 2018. As the Dirham is pegged to the US dollar, interest rates rose in the Emirates as well. Two additional rate hikes are expected in the US during 2019, which will immediately correlate to interest rate increases in the UAE.

Completed and Off Plan Units

Quarter-on-Quarter movement volumes (Completed) +22% Year-on-Year movement volumes (Completed) +7%Quarter-on-Quarter movement volumes (Off-plan) +33% Year-on- Year movement volumes (Off-plan) -13%

The completed unit market continued to exhibit increasing resilience to the decline in transactional volumes in Q4 with a 22% increase over Q3. We expect this trend to gain momentum in 2019 as developers continue offering attractive incentives such as 5% down payments and long-term payment plans.

Despite the fact the number of off-plan transactions was up 33% on Q3, the year-on-year figure was still 13% down from 2017 which demonstrates that buyers may be more inclined to take the lower risk option of property that is move-in ready so there are no issues with delayed handovers.

Quarter-on-Quarter movement values (Completed) +9% Year-on-Year movement values (Completed) +9%Quarter-on-Quarter movement values (Off-plan) +31% Year-on- Year movement values (Off-plan) -14%

Transactional values for completed properties showed an increase of 9% from AED 4.93 billion in Q3 to AED 5.39 billion in Q4. Additionally, there was a 31% uplift in values for off-plan properties in Q4 which is in stark contrast to the previous quarter where there was a decrease of 33% in overall values from Q2.

In Q4, Dubailand had the highest number of completed unit transactions and the highest value of completed unit transactions.

In Q4, International City had the highest number of off-plan transactions, whilst Downtown Dubai had the highest value of off-plan transactions.

1,000

0

2,000

3,000

4,000

5,000

6,000

Q3 2018 Q4 2018

Completed Properties O�-planFigures in AED/Sq FtSource: REIDIN & Chestertons

Completed Properties

O�-plan

5.395.82

1,000

0

2,000

3,000

4,000

5,000

6,000

Q3 2018 Q4 2018



O�-plan

5.395.82 1,000

0

2,000

3,000

4,000

5,000

6,000

Q3 2018 Q4 2018



O�-plan

5.395.82

Volume of Residential Transactions Q4 2018 (Number of Units)

Value of Residential Transactions Q4 2018 (AED Billions)


Q4 2018 Sales TransactionsCompleted Units

Top 10 Areas Based on Transaction Volumes (Number of Units) Top 10 Areas Based on Transaction Volumes (Number of Units)

Q4 2018 Sales TransactionsOff-plan Units

Top 10 Areas Based on Transaction Values (in million AED) Top 10 Areas Based on Transaction Values (in million AED)

100 200 300 400 600 500

Business Bay

Jumeirah Lake Towers

Downtown Dubai

Dubai Sports City

Emirates Living

Palm Jumeirah

Jumeirah Village Circle

International City

Dubai Marina

Dubailand

200 400 600 800 1,000

Dubai Sports City

Al Furjan

Business Bay

Arabian Ranches


Downtown Dubai

Emirates Living

Dubai Marina

Palm Jumeirah

Dubailand

0 100 200 300 400 500 600 700 800 900

Palm Jumeirah

Dubai South

Dubai Marina

The Lagoons


Downtown Dubai

Business Bay

MBR City

Dubailand

International City

0 200 400 600 800 12001000

Bluewater Islands


Palm Jumeirah

Dubai Marina

International City

The Lagoons

Business Bay

Dubailand

MBR City

Downtown Dubai

Source: REIDIN & Chestertons Source: REIDIN & Chestertons


100 200 300 400 600 500

Business Bay


Downtown Dubai

Dubai Sports City

Emirates Living

Palm Jumeirah


International City

Dubai Marina

Dubailand

200 400 600 800 1,000

Dubai Sports City

Al Furjan

Business Bay

Arabian Ranches


Downtown Dubai

Emirates Living

Dubai Marina

Palm Jumeirah

Dubailand

0 100 200 300 400 500 600 700 800 900

Palm Jumeirah

Dubai South

Dubai Marina

The Lagoons


Downtown Dubai

Business Bay

MBR City

Dubailand

International City

0 200 400 600 800 12001000

Bluewater Islands


Palm Jumeirah

Dubai Marina

International City

The Lagoons

Business Bay

Dubailand

MBR City

Downtown Dubai



100 200 300 400 600 500

Business Bay


Downtown Dubai

Dubai Sports City

Emirates Living

Palm Jumeirah


International City

Dubai Marina

Dubailand

200 400 600 800 1,000

Dubai Sports City

Al Furjan

Business Bay

Arabian Ranches


Downtown Dubai

Emirates Living

Dubai Marina

Palm Jumeirah

Dubailand

0 100 200 300 400 500 600 700 800 900

Palm Jumeirah

Dubai South

Dubai Marina

The Lagoons


Downtown Dubai

Business Bay

MBR City

Dubailand

International City

0 200 400 600 800 12001000

Bluewater Islands


Palm Jumeirah

Dubai Marina

International City

The Lagoons

Business Bay

Dubailand

MBR City

Downtown Dubai



100 200 300 400 600 500

Business Bay


Downtown Dubai

Dubai Sports City

Emirates Living

Palm Jumeirah


International City

Dubai Marina

Dubailand

200 400 600 800 1,000

Dubai Sports City

Al Furjan

Business Bay

Arabian Ranches


Downtown Dubai

Emirates Living

Dubai Marina

Palm Jumeirah

Dubailand

0 100 200 300 400 500 600 700 800 900

Palm Jumeirah

Dubai South

Dubai Marina

The Lagoons


Downtown Dubai

Business Bay

MBR City

Dubailand

International City

0 200 400 600 800 12001000

Bluewater Islands


Palm Jumeirah

Dubai Marina

International City

The Lagoons

Business Bay

Dubailand

MBR City

Downtown Dubai




Predicted key market trends for Dubai’s residential sector in 2019


Financial

As a result of oversupply and interest rate hikes, developers and lenders need to be proactive to ensure there are measures in place to keep the real estate market within reach of those that are open to invest. For example, developers introduced a number of flexible payment plans in 2018 due to the inability of the market to absorb the additional stock being launched/delivered. We predict there could be keen competition between developers to keep plying the market with attractive incentives as oversupply continues to dominate the agenda.

The removal of the 20% cap on banks’ real estate lending will affect the market, as it is clear this has been introduced to provide more flexibility to individual banks with the aim of helping them extend their lending to buoy the real estate sector.

Technological

Technological innovation will evolve real estate dynamics. For example, the Dubai Land Department, in cooperation with Smart Dubai, is looking at how to adopt Blockchain technology within its electronic real estate platform. Although this initiative is still in its early stages, it has the potential for multiple applications that include property purchases, property mortgages, utilities payments and property and facilities management.

Real Estate Design

Developers will need to constantly evolve their ideas and strategies to meet consumer demand. One of the key trends that emerged towards the end of 2018 in the UAE, is off-plan developers decreasing the size of units to cater to a new market segment looking for more affordable housing. By lowering ticket prices, the aim appears to be to increase absorption rates.

Contact Us Nick Witty, BSc (Hons) MRICSManaging [email protected]

Adam Wilson, BSc (Hons) MRICS ACIArbDirectorHead of International [email protected]

Vladimir Cvetinovic, MRICSAssociate DirectorValuations & Advisory - Abu [email protected]

Ivana Gazivoda VucinicHead of [email protected]

Ellen SleutjesHead of Property Management - [email protected]

Mena Head Office1802, Blvd. Plaza Tower 1Sheikh Mohammed Bin Rashid Blvd. Downtown DubaiPO Box 28336, Dubai United Arab Emirates Office: +9714 381 0200 Fax: +9714 325 3359 Email: [email protected]

Dubai Office106, Rasis Business Center, Al Barsha 1 PO Box 283361, Dubai United Arab EmiratesOffice: +9714 392 7818Email: [email protected]

Abu Dhabi OfficeOffice M01, Mezzanine FloorAl Ghazal Building (Above Al Hilal Bank) Khalifa Park PO Box 128983, Abu Dhabi United Arab EmiratesOffice: +9712 447 3100 Fax: +9712 441 6200 Email: [email protected]

Bahrain OfficeMaz Business CentreThe LagoonAmwaj IslandOffice: +973 1603 0646Email: [email protected]

Disclaimer:All articles and data presented herein is intended for information purposes and has been compiled from sources deemed reliable including the Valu-ations and Research Department of Chestertons, sales and leasing staff, published data, and secondary sources. Though information is believed to be correct, materials presented is subject to errors, omissions, changes, or withdrawal without notice.

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observer dubai market report q4 / 2018

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