ValuStrat real estate report predicts plateau in Dubai prices

Haider Tuaima, research manager at ValuStrat
Haider Tuaima, research manager at ValuStrat

According to a recent report on the real estate sector in Dubai, residential and commercial transaction volume witnessed a fourth-quarter increase — the first of 2015.

The report, conducted by leading local consulting firm ValuStrat, focused on the fourth quarter of 2015.

"ValuStrat Q4 report's major findings include an increase in residential and commercial transaction volume for the first time in 2015," Haider Tuaima, research manager at ValuStrat, told Gulf News Journal. "The report also found the prime retail sector continued its strong performance along with the hospitality sector with regionally high occupancy rates of 80 percent for Q4, although with lower average daily rates due to continued new supply of an estimated 7,700 keys in 2015."

The report found that approximately 50 percent of residential supply delayed during the period, with a 6.4 percent decline in residential values as per the ValuStrat Price Index — a comparison of values for a fixed basket of properties in 26 freehold locations measured over time.

Compared to the same period in 2014, the fourth quarter of 2015 saw residential rents in Dubai drop between three and five percent.

"The asking rents declined slightly due to seasonal factors, after the summer holidays, as well as due to new units being handed over, particularly in prime areas," Tuaima said. "This was also reflected in the recent RERA index update."

The residential construction sector faced a more-than-expected slowdown. ValuStrat continued to monitor the progress of construction projects citywide and found that although some projects were handed over before their due dates, many others faced delays.

"By December 2015, ValuStrat research compared databases of all projects and found that around 15,000 residential units have been delayed, representing almost half of the total estimated at the beginning of 2015," Tuaima said.

The ValuStrat Price Index statistical analysis, which is based on a representative sample of properties, is compared and carefully weighed over monthly periods. The analysis found that a volatile 14 months starting in January 2014 was followed by extreme monthly growth rates of 4.1 percent, with a drop to 2.7 percent by March 2015. The value declines started to decelerate from one percent before reaching zero percent in October and November. December values saw just a 0.1 percent dip, registering no significant change.

"By analyzing value patterns over time for the whole sample, and assuming similar economic conditions, we could conclude that there's a high probability that this year may see a plateau in prices as we have already witnessed during the last few months," Tuaima said.

Basing on the findings of this report, Tuaima said 2016 is likely to see a stable residential market.

"With the continued safe haven status that Dubai enjoys, we expect a rise in inquiries for ready properties in prime areas, anticipating capital appreciation and higher rental yields in mid-affordable areas," he said. "We are also likely to see competitive payment plans from developers, increased transaction volumes, marginally softened residential rents, continued growth in the prime retail sector and increased interest for sub-prime office space."