The ‘UAE Real Estate Report Q1 2018’ by Asteco has recorded an annual decline in villa and apartment sales and rental rates across the country. The quarterly report also highlights key market trends, major project announcements and outlook for the remainder of the year across Abu Dhabi, Al Ain, Dubai and Northern Emirates.
John Stevens, Managing Director of Asteco, said: “Tenants are increasingly taking advantage of the declining rents across the board, and choose to upgrade from apartments to villas or to better-quality and larger units. However, many remain cautious due to economic uncertainties or are waiting for further reductions. People are also moving from older to newer buildings, as these often include parking and other facilities that are non-existent or come at an extra charge in mature buildings.”
In Abu Dhabi, approximately 1,600 residential units were delivered in Q1 2018, with over 75% located within the city’s investment zones including Yas Island, Al Reem Island and Al Raha Beach. More than 7,300 residential units and 100,000 square metres of office space are earmarked for completion before end-2018. However, previous delivery patterns suggest a number of these are likely to be delayed, spilling over to 2019.
Among the key projects handed over in Abu Dhabi in Q1 2018 were Ansam on Yas Island, Al Hadeel in Al Raha Beach and Al Muhaimat Tower on Al Reem Island, in addition to several stand-alone buildings in various locations. The most noteworthy announcement was Saadiyat Grove by Aldar and Emaar that falls within the framework of a strategic alliance between the two companies to develop local and international projects worth AED30 billion.
Apartment and villa rental rates declined on average by 3% and 2% since Q4 2017, while recording annual decreases of 11% and 9% respectively. Apartment sales prices remained broadly unchanged over the quarter, except for Marina Square (-5%), Al Reef Downtown (-6%) and Sun & Sky Towers (-6%). Villa sales prices were stagnant throughout the first quarter, with a slight decrease in Al Reef (-2%). Annually, the highest decline in sales prices was recorded in Hydra Village (-8%), followed by Al Reef villas (-5%) and Raha Gardens (-4%).
Stevens said: “The changes reported in these areas are a result of increased competition from new off-plan developments offered at attractive rates and favorable payment plans. Although healthy demand for high-quality, off-plan and newly delivered projects continued, lower-end residential units remained under pressure.”
In Al Ain, although apartment rental rates remained broadly stable, villa rents decreased by an average of 2% since Q4 2017 and 5% annually. Annually, rental rates in Al Ain dropped the most in mature buildings (-7%), followed by prime compounds (-5%) and new buildings (-3%).
Several buildings in the Town Centre and Asharej areas are planned for completion in Q2 2018. In addition, around 8,000 square metres of office space were handed over in the Senaya area, while no significant amount of residential supply was delivered in Q1 2018.
Stevens said: “Al Ain saw an increase in vacancies in the residential and office segments, mainly due to the reduction in staff housing allowances. This first occurred in 2016 and continues to have an adverse effect on the real estate market in the region.”
Following a period of relative stability (despite the overall subdued market sentiment), Al Ain’s retail rental rates have finally come under pressure due to reduced consumer spending, and limited business and employment growth, recording an average decline of 5% in Q1 2018.
Speaking on the market outlook in Dubai, Stevens said: “In 2018, we anticipate the delivery of approximately 30,000 residential units, however, as with Abu Dhabi, past evidence has shown that the actual completion rate is often significantly lower due to delays. Only 3,650 properties (12%) have so far been handed over in the first quarter of the year.”
Most of the recent inventory is concentrated in the new investment areas along the Sheikh Mohammed Bin Zayed Road (E311) and Emirates Road (E611) corridors. Among established communities, Dubai Marina also recorded additional supply with the completion of the first of three residential towers at The Residences at Marina Gate.
New additions to the office market included the handover of The Exchange at Dubai International Financial Centre (DIFC) and one building within the One Central project in the neighboring Trade Centre district. This marks an important development for Grade A office supply, which had previously been undersupplied.
The annual rental declines in Dubai have been consistent in each quarter over the past year, averaging 10% for both apartments and villas. Areas where apartment rental rates recorded the highest decline since Q1 2017 include Jumeirah Beach Residence (-15%), Downtown Dubai, Dubai Marina and Deira (-14%), followed by The Greens and Dubai Sports City (-13%). Similarly, villa locations that recorded highest drop in rental rates include Jumeirah Village (-15%), Jumeirah Park (-13%) and Arabian Ranches (-11%).
The Emirate’s real estate market is becoming increasingly fragmented, resulting in a considerable widening of the rental rate ranges. Incentives such as multiple cheques, rent-free periods, and the absorption of utility, maintenance or agent fees are becoming the norm.
While on the whole, the residential sector has witnessed only a minimal quarter-on-quarter decline at 1%, newly handed-over lower-end buildings in areas with significant supply potential have struggled with occupancy, particularly where rates and incentives were not aligned with the market.
Similarly, the average apartment and villa sales prices softened by around 1% in Q1 2018. While the annual decline for villas (6%) was less pronounced than for apartments (9%), particularly large villas with high price points generated limited interest, mainly due to the lower investment yields attached to this type of unit.
Stevens said: “We recorded a moderate increase in enquiries and transactions for high-end residential units, suggesting that albeit at a conservative level, there is still appetite for this product.”
Affordable housing options remained at the forefront of buyers’ interest, with the majority of banks and developers stipulating a minimum monthly salary of AED15,000 in order to purchase property in the Emirate.
Stevens said: “Despite the boost in luxury project launches, we believe developers will continue to focus on affordable and mid-market housing because there remains a substantial supply gap. Other factors bolstering the trend include the growing young population (over 60% are aged 25 to 44) and the rising popularity of home ownership (investment or owner occupation.”
Although enquiry levels for office space have remained low for the overall market, an interest in Grade A stock in established office locations such as DIFC was recorded.
In the Northern Emirates, infrastructure development remained on top of the list for governments. In addition, large-scale developments have started to materialise, including three projects worth AED 2.7 billion, initially announced in 2016 by Eagle Hills and the Sharjah Investment and Development Authority (Shurooq), a strategic alliance to develop Sharjah’s real estate market and attract investment to the Emirate. Construction on the master plan is expected to start later in 2018, and the first units are earmarked for handover by end-2019.
The project comprises Maryam Island in Sharjah – a mixed-use destination featuring 1,890 freehold residences as well as a hotel component, Palace Al Khan – a luxury waterfront resort with 87 rooms, and Kalba Waterfront – a master-planned retail development within the Kalba Eco-Tourism Project with 183,000 square feet of gross leasable area.
While no major residential and office supply was delivered in Q1 2018, Sharjah expects additional residential stock on completion of Nasma Residences Phase 1 and Al Zahia Residences, both due for handover by the end of the year.
Apartment rental rates in the Northern Emirates declined by 1% on average since Q4 2017, while recording an annual decrease of 11%. Further downward pressure is expected, as the delivery of supply in Dubai directly affects the recovery of rates in the other Emirates. Office demand in Sharjah continued to drop, with quarter-on-quarter rates declining by 2% on average.
Summarising Asteco’s outlook on real estate developments in the Northern Emirates, Stevens said: “The recently implemented legislation that allows non-Arab nationals without a UAE residency visa to purchase properties in Sharjah on a 100-year renewable lease is expected to stimulate demand and ultimately increase foreign investment in the real estate market.”
