With 23,000 apartments and 8,500 villas scheduled for handover in Dubai in 2018, significantly more than the supply in 2017, tenants and investors will stand to benefit by way of more negotiating power, a report from Asteco, a real estate consultancy, said.
While 2016 and 2017 saw a significant amount of new project launches and deliveries resulting in moderate but steady declines in sales prices and rents, 2018 will follow similar trends although project launches are anticipated to ease off as the market finds a new equilibrium, Asteco said.
"2018 is set to be another favourable year for tenants with rental rates predicted to incur a marked drop as a result of the sheer amount of supply projected for delivery this year."
In 2017, Dubai saw the delivery of 13,000 apartments, 3,600 villas and 2.6 million sqft of office space.
"Investors will continue to be more sensitive to the price point of properties as opposed to the price per square foot, meaning units that were previously advertised below the Dh1,000 per sqft mark will be marketed for instance at below Dh500,000 for studios or Dh1 million for one-bedroom apartments to entice take-up."
The consultancy argued that in order to stimulate demand for completed properties and increase transaction activity in this sector, the UAE Central Bank would need to relax their LTV (loan to value) ratios to make home ownership more accessible to a large proportion of the local and overseas population. "However, there is no indication of any such changes in the short term."
Although residential sales and leasing is generally exempt, the introduction of value-added tax (VAT) will indirectly affect tenants and investors as the tax is applicable to items such as maintenance, utility and agency fees. However, given current market conditions, some of these charges are expected to be initially absorbed by owners/landlords, Asteco said.
"While VAT affects all of us, the impact for tenants will be negligible. The commercial market will adjust accordingly as we see the system successfully implemented nationwide," said John Stevens, managing director, Asteco.
However, following the VAT introduction, which is applicable to the commercial sector, there has been concern in the market on how this will affect both tenants and investors. "Despite the fact that it is expected to dampen market sentiment in the short term, Asteco believes that in the long term, it will ultimately boost the economy."
In 2017, apartment rents softened steadily with decreases ranging from two per cent to four per cent per quarter on average. Drops in sales prices were slightly less prominent with variations of zero per cent to four per cent. The villa market fared similarly with average quarterly declines in sales prices and rental rates of two per cent and three per cent respectively.
"2017 recorded discernible contractions across all asset classes. However, this had and will continue to have a positive effect on tenants and investors with opportunities and value to be realised in 2018," said Stevens.
One-bedroom apartments across the board have seen rents drop between Dh5,000 to Dh20,000, showcasing a further 13 per cent decrease on 2016. Units in Downtown Dubai are now available for Dh95,000, The Greens for Dh75,000, Dubai Marina for Dh70,000 and International City reports Dh40,000 on average.
Rents for one to three-bedroom apartments have shown an average decrease of 13 per cent compared with the fourth quarter of 2016 and 18 per cent since the last market peak in 2014, which has led to owners/landlords offering a number of incentives, including rent-free periods and increased cheque payments to retain tenants and/or improve occupancy.
Stevens said these conditions have put the bargaining power firmly in the hands of tenants who enjoyed a wider choice of properties, discounted rates and increased incentives. New properties and areas of the city are also becoming more accessible to a wider tenant pool.
In 2017, average villa rents fell by 11 per cent with four-bedroom units in Arabian Ranches for example priced at Dh190,000 versus Dh235,000 in 2016.
Sales prices were affected the least with an average decrease of six per cent, although it is important to note that demand for villas with high ticket prices remained subdued in 2017.