Dubai's residential rents dip slightly in H1

The residential rents in Dubai witnessed a slight drop in the first half of this year with lease rates falling 2.9 per cent for apartments and 5.6 per cent for single family home (villas), said a report.

Residential sale prices and rents rose in the second quarter compared to Q3, but the rate of growth slowed for both, according to the data from Phidar’s House Price Index.

The Dubai-based property expert said the rate of growth for lease rates slowed more dramatically, creating yield compression in the first half.

Based on transaction data from the first six weeks of Q3, nominal prices for single family homes (SFHs) declined 4 per cent and apartments declined 0.6 per cent compared to the last quarter, the report said.

"Apartment and single family home (SFH) sale price performance varied across Dubai. For apartments,
The Greens increased by 0.26 per cent, but Uptown Motor City decreased by 0.94 per cent," said Phidar in its report.

For SFHs, Jumeirah Islands declined 8.4 per cent, but The Lakes increased 6.4 per cent. Like the sale price data, the third quarter rent data is provisional and indicative of nominal trends.

Phidar’s report said the premium for completed properties shrank considerably in the third quarter compared to off-plan properties in Q2.

For single family homes, the current off-plan discount is approximately 15.6 per cent, which is on the lower limit of the acceptable range of 15- 20 per cent, said the expert.

"Considering the preliminary Q3-14 data, if price attrition and/or stagnation continues for completed properties, then this trend should also lead to erosion of off-plan sale prices," it added.

The expert pointed out that although the market was technically undersupplied, rent inflation had slowed. "This is likely due to ambitious expectations in H1-2014 that pushed up asked rents beyond affordability constraints. Housing demand is relatively elastic, but alternatives, like sharing and relocation to other emirates, exist and form an - albeit pliable - ceiling," it stated.

Year-on-year, however, rents are up. Nominal average apartment lease and SFH rates are up 14.9 per cent and 0.9 per cent in first half compared to the third quarter last year.

According to Phidar, the emirate needs as many as 30,000 additional units through 2018 to maintain rent stability.

"Residential development opportunities are still ample in Dubai, but the market would benefit exponentially from developer specialisation, particularly in the most under-supplied assets (middle income housing)," the report added.

The consultancy believes that over this period another 15,000 units could be reactivated from stalled projects thereby creating a viable supply gap of as much as 20,000 units.

"Clearly, residential development opportunities remain in Dubai, however, the market would benefit from developer specialization, particularly in the most undersupplied assets: middle income housing," the report added.