sign in sign up
<<
Home , Developments in Dubai

RESEARCH

UAE RESIDENTIAL MARKET REVIEW Q1 2018

PRICES CONTINUE TO SOFTEN IN ’S AND ’S RESIDENTIAL MARKETS RESIDENTIAL RESEARCH UAE RESIDENTIAL MARKET REVIEW Q1 2018

Key findings The fragmented market performance across Dubai’s residential sector Mainstream residential prices in Dubai is continuing, as a growing number of sub-markets begin to record fell 4.8% over the year to Q1 2018. either stable or improving prices. Abu Dhabi’s market is starting to see price falls moderate, however the market faces strong demand and On a community basis, data as at supply headwinds. March 2018 shows that out of the 54 communities tracked by Property Monitor, 46 (87%) have registered Dubai Mainstream residential prices in Dubai fell annual price falls, a year earlier all 4.8% over the year to Q1 2018 according communities across Dubai were Dubai’s residential property market to data from REIDIN. Prices across the witnessing prices softening. started 2018 on a weak footing as city fell relatively evenly for both villas demand slowed in certain segments of (5.0%) and for (4.7%). Prime residential prices in the year to the market due to a more fragile economic backdrop with GDP growth slowing from On a community basis, data as at March 2018 fell on average by 2.6%, up March 2018 shows that out of the 54 from the 5.5% decline witnessed a year 3.1% in 2016 to 2.8% in 2017. Despite communities tracked by Property Monitor, earlier. the slowdown, confidence has remained relatively upbeat at the start of 46 (87%) have registered annual price the year, however consumer confidence falls. A year earlier all communities across In the year to Q1 2018 average sales Dubai were witnessing prices softening. prices in Abu Dhabi fell by 7.2%, an has been weak, impacting overall More so, seven of these areas have increase from the 6.8% decline a year demand. registered price growth over the year to earlier, prices falls have moderated in Proposed developments in Dubai’s Q1 2018. The current gap between the top each of the last three quarters. Mortgage Law may help provide some and bottom ranking communities, in terms support for the sector. Whilst the details of annual price performance, currently of the new law are still to be finalised, stands at 7.6%. These price movements the objectives set out by Dubai Land show that we are continuing to see a Department indicate that it is likely to have fragmented market emerge. a positive impact for both domestic and foreign demand by encouraging access Rental rates across Dubai fell on average to alternative financing methods, from an by 7.7% in the year to Q1 2018, with investor, owner-occupier and institutional rents falling by 7.3% and standpoint. Villa rents by 10.1% over the same time period. Unlike the sales market where we are beginning to see certain Mainstream market

FIGURE 1 Dubai mainstream residential, year-on-year % change

TAIMUR KHAN 50% Senior Analyst 40%

“There is a considerable 30%

amount of supply scheduled 20% to enter the market this year, 10% if this supply is delivered on schedule we are likely to see 0% prices continue to soften.” -10%

-20%

-30% Q1 2011 Q1 2017 Q1 2014 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q1 2015 Q1 2018 Q1 2013 Q1 2016 Q1 2010 Q2 2017 Q3 2017 Q4 2017 Q2 2014 Q3 2014 Q4 2014 Q2 2012 Q3 2012 Q4 2012 Q2 2015 Q3 2015 Q4 2015 Q2 2013 Q3 2013 Q4 2013 Q2 2016 Q3 2016 Q4 2016 Q2 2010 Q3 2010 Q4 2010

Please refer to the important notice Source: Knight Frank Research Citywide Villas Apartments at the end of this report. UAE RESIDENTIAL MARKET REVIEW Q1 2018

areas outperform the market, in the FIGURE 2 rental market all communities registered Dubai rents, year-on-year % change declining annual rental rates. 35%

30% Prime Market 25% 20%

Contrary to the broader trends witnessed 15% in the mainstream market, prime markets 10% in Dubai are seeing somewhat of a 5% stabilisation in price performance. Prime 0% residential prices in the year to March -5% 2018 fell on average by 2.6%, up from the -10% 5.5% decline witnessed a year earlier. -15%

As noted in Knight Frank’s last UAE Q1 2017 Q1 2014 Q1 2015 Q1 2018 Q1 2013 Q1 2016 Q2 2017 Q3 2017 Q4 2017 Q2 2014 Q3 2014 Q4 2014 Q2 2015 Q3 2015 Q4 2015 Q2 2013 Q3 2013 Q4 2013 Q2 2016 Q3 2016 Q4 2016 residential market review, prime sub- market performance is diverging. The Source: Knight Frank Research Citywide Villas Apartments Lakes and Palm recorded price growth of 2.6% and 1.2% in the 12 months to March 2018 respectively. Prices in Downtown continue to edge FIGURE 3 lower however the rate of price falls is Prime market performance, year-on-year % change moderating with the latest year-on-year rate falling to 5.2%, down from the 9.8% 40% decline recorded in 2017. In Emirates

Hills prices have fallen by 12.2% in the 30% year to Q1 2018, lower levels of demand and more realistic vendor expectations 20% have driven prices lower.

10%

Yields 0% Mainstream yields in Dubai stood at 6.75% and prime yields at 5.48%. -10% Whilst mainstream yields are up from the previous quarter they remain below their -20% level of 6.95% a year earlier. Prime yields have fallen for five consecutive months JUL 2017 JUL JUL 2014 JUL JUL 2012 JUL JUL 2015 JUL JUL 2013 JUL JUL 2016 JUL JAN 2017 JAN 2014 JAN 2012 JAN 2015 JAN 2013 SEP 2017 JAN 2018 JAN 2016 SEP 2014 SEP 2012 SEP 2015 SEP 2013 SEP 2016 MAY 2017 MAY 2014 MAY 2012 MAY 2015 MAY 2013 MAY 2016 NOV 2017 NOV 2014 NOV 2012 NOV 2015 NOV 2013 NOV 2016 MAR 2017 MAR 2014 MAR 2012 MAR 2015 MAR 2013 MAR 2018 and are likely to continue to decrease as MAR 2016 prime rents remain under pressure across the city. Downtown Emirates Hills The Lakes Source: Knight Frank Research Prime composite index

Transactions Living and Palm Jumeirah both witnessed Mainstream transaction volumes in the FIGURE 4 12 months to Q1 2018 increased by lower transaction levels in the same Dubai yields, Q1 2018 10.6% when compared to the same 12 month period. Overall, we remain period in 2017. Over the same time optimistic as to the performance of the period, secondary market transactions fell prime market relative to the mainstream DIRECTION* marginally by 1.3% however despite the market over the course of 2018. Aside slow first quarter, off-plan transactions from Downtown, the level of supply due Mainstream yield 6.74% increased by 18.4% on an annual basis, to be delivered in prime communities compared to the same annual period a remains manageable, this combined with Prime yield 5.48% year earlier. more realistic vendor pricing and the high quality product offering will continue to Prime transaction volumes have fallen drive demand in the prime market. *Note: Direction compared to last quarter 16% in the year to Q1 2018. was the only prime area where transaction volumes increased within the Source: Knight Frank Research prime segment of the market. Emirates UAE RESIDENTIAL MARKET REVIEW Q1 2018

FIGURE 5 FIGURE 6 Dubai, transactions Dubai residential supply, number of units

Number of sales 3,000 90% 700k 80% 2,500 600k 70% 500k 2,000 60% 50% 400k 1,500 40% 300k 1,000 30% 200k 20% 500 10% 100k 0 0% 0 2017 2014 2012 2015 2013 2018 2016 2019 2020 JUL 2017 JUL JUL 2016 JUL FEB 2017 FEB 2018 FEB 2016 JAN 2017 SEP 2017 JAN 2018 JAN 2016 SEP 2016 JUN 2017 JUN JUN 2016 JUN APR 2017 APR 2016 DEC 2017 OCT 2017 MAY 2017 DEC 2016 OCT 2016 MAY 2016 AUG 2017 NOV 2016 AUG 2016 MAR 2017 MAR 2018 MAR 2016 NOV 2017

Secondary, year-on-year % change Off plan, year-on-year % change Existing supply

Source: Knight Frank Research Off plan as % of total (RHS) Source: Knight Frank Research Forecast supply

Demand There are three main factors which Overall there is cautious optimism for could prove to be strong headwinds Dubai’s economy with GDP growth Dubai Land Department reported that for the residential market and its future forecast at 3.5% and employment growth in Q1 2018 UAE nationals remained the performance. forecast to increase to 1.6% in 2018, up largest buyer group in Dubai with AED from 0.7% in 2017. This combined with The reliance on stable and relatively high 4bn in transactions. Indian investors a recent fiscal stimulus by the Dubai oil prices for regional GDP growth remains continued to rank as the largest foreign Government as well as the new Mortgage as the single largest economic risk for the nationality to invest in Dubai with AED 3bn Law may provide further support for the region, albeit a continually abating one in property purchases in Q1 2018. Saudi residential market. Arabian investors ranked third with total due to various economic diversification investments amounting to nearly AED strategies. Any sudden supply side 1.3bn. Pakistani investors ranked fourth shocks which adversely impact oil prices overall and investors from the UK fifth, could lead to a slowdown in the economy a reverse in positions from the rankings and lower consumer confidence which in in 2017. Chinese, Egyptian, Russian, turn would impact the residential market. Jordanian and Canadian nationals Secondly, there is a considerable level of occupied the rankings from sixth to tenth supply due to be delivered to the market respectively. this year in Dubai. Knight Frank expect in 2018, 32,727 units are scheduled to be delivered. If this level of supply comes Outlook to fruition it may drive prices lower and The outlook and sentiment for Dubai’s could impact confidence - at least in the GDP in 2018 remains positive on the back short run. However, the severity of this will MARIA MORRIS of stronger global growth forecasts by very much vary community by community Partner, Head of MENA Residential the IMF, up 0.2% to 3.9% for both 2018 and we anticipate that pricing in mature and 2019. Furthermore, whilst Dubai’s communities which are rich in amenities “Aside from Downtown, GDP is not as sensitive to a slowdown and offer good connectivity, is likely to be the level of supply due in the hydrocarbon sector compared to impacted the least as a result of this. More to be delivered in prime its regional peers, due to its diversified so, as developers more actively phase in communities remains economic structure, the slowdown has supply this may ease pressure on prices. manageable, this combined impacted ancillary which Finally, after a period of almost of a year of with more realistic vendor service this sector from Dubai given its devaluation, the Emirati Dirham has begun regional hub and leading financial centre pricing and the high to strengthen. If this trend continues it status. Therefore, the increase in oil prices quality product offering will may impact foreign demand for property to US$69.6 as at March 2018, up from continue to drive demand in as investing in Dubai’s market becomes US$53.7 a year earlier will help underpin more expensive for foreign currency the prime market.” economic growth this year. In May 2018 holders. the oil price per barrel reached up to US$80, the highest level since November 2014. UAE RESIDENTIAL MARKET REVIEW Q1 2018

Looking at key sub-markets we have seen Outlook Abu Dhabi price falls in all Abu Dhabi’s key markets The outlook for Abu Dhabi’s economy Abu Dhabi’s GDP decreased by 1.0% and property types although the range is positive, however we remain cautious in 2017, with the crude and natural gas varies (Figure 9). Villas on Saadiyat regarding the fragility of the recovery. The sector’s slowdown of 5.2% continuing saw prices falls moderating to 4.4% recovery in oil prices to highs not seen to be a drag on the overall growth rate. in the year to Q1 2018 from the 8.9% since November 2014 and spending on Despite the weaker performance in the oil decline seen in the same time period a economic diversification plans, particularly sector, the non-oil sector has remained year earlier. Al Raha Beach villas saw the those related to the travel and resilient with 3% growth recorded in 2017. largest shift down in prices. In the year to market are likely to help underpin growth. Therefore whilst Abu Dhabi’s economic Q1 2017 annual price growth registered GDP growth in Abu Dhabi is forecast to backdrop remains challenged, we are at 10.0%, over the same time period in reach 5.8% in 2018 and also in 2019. beginning to see some resilience return to 2018 prices have fallen by 7.5%. Finally, the market. apartments on Reem Island saw the However despite reasons for positivity, largest annual price falls recorded across we remain cautious on the outlook of these sub-markets at 9.0%. the market due to the level of supply set Market Performance Rental rates across Abu Dhabi fell on to be delivered in 2018. Knight Frank In the year to Q1 2018 average sales average by 10.3% in the year to Q1 2018, estimate that 8,121 residential units will prices in the capital fell by 7.2%, an with apartment rents falling by 10.8% and be delivered. With investors and owner- increase from the 6.8% decline a Villa rents by 9.3% over the same time occupiers choosing to adopt a ‘wait year earlier, however prices falls have period. Rents have fallen consecutively for and see approach’ leading to a lack of moderated in each of the last three 24 months in Abu Dhabi. demand we are unlikely to see the current quarters. Villa prices have fallen by 3.0% residential market situation begin to Yields in Abu Dhabi fell to 6.72% as at Q1 and apartment prices by 8.6% over the improve in 2018. 2018, down from 6.9% a year earlier. same time period.

FIGURE 7 FIGURE 8 Abu Dhabi mainstream residential, year-on-year % change Abu Dhabi yield, Q1 2018

40%

30%

20%

10% DIRECTION*

0% Mainstream yield 6.7% -10%

-20% *Note: Direction compared to last quarter -30%

-40% Q1 2011 Q1 2017 Q1 2014 Q2 2011 Q3 2011 Q1 2012 Q1 2015 Q1 2013 Q1 2016 Q1 2010 Q2 2017 Q3 2017 Q2 2014 Q3 2014 Q2 2012 Q3 2012 Q2 2015 Q3 2015 Q3 2018 Q2 2013 Q3 2013 Q2 2016 Q3 2016 Q2 2010 Q3 2010

Source: Knight Frank Research All properties Villas Apartments Source: Knight Frank Research

FIGURE 9 Abu Dhabi, sub markets price performance

15%

10%

5%

0%

-5%

-10%

-15% Reem Island, apartments Al Raha Beach, apartments Al Raha Beach, villas Al Reef, villas Saadiyat Island, villas

Source: Knight Frank Research Year-on-year % change to Q1 2018 Year-on-year % change to Q1 2017 FIGURE 10 RESEARCH Abu Dhabi rents, year-on-year % change Taimur Khan Senior Analyst 2% +971 56 4202 312 [email protected] 0%

-2% MENA RESIDENTIAL

-4% Maria Morris Partner -6% +971 56 4542 983 -8% [email protected]

-10% DEVELOPMENT CONSULTANCY & -12% RESEARCH

-14% Harmen De Jong Partner +971 56 1766 588 FEB 2018 SEP 2017 JAN 2018 DEC 2017 COT 2017 JUL 2017 JUL NOV 2017 JUL 2016 JUL FEB 2017 JAN 2017 SEP 2016 MAR 2018 JUN 2017 JUN JUN 2016 JUN APR 2017 [email protected] APR 2016 MAY 2017 DEC 2016 OCT 2016 MAY 2016 AUG 2017 NOV 2016 AUG 2016 MAR 2017 MAR 2016

VALUATION & ADVISORY SERVICES Stephen Flanagan, MRICS Source: Knight Frank Research Citywide Villas Apartments Partner +971 50 8133 402 [email protected] FIGURE 11 Abu Dhabi residential supply, number of units CAPITAL MARKETS / INVESTMENT Joseph Morris, MRICS

265k Partner +971 50 5036 351 260k [email protected]

255k MEDIA & MARKETING 250k Nicola Milton

245k Head of Marketing +971 56 6116 368 240k [email protected]

235k 2014 2015 2016 2017 2018 2019 2020

Source: Knight Frank Research Existing supply Forecast supply

Important Notice RECENT MARKET-LEADING RESEARCH PUBLICATIONS © Knight Frank 2018 - This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank to the form Abu Dhabi Office Dubai Office Market The Hub Report 2018 The Wealth Report City and content within which it appears. Market Review Q1 2018 Review Q1 2018 Series: Dubai Edition Knight Frank UAE Limited (Dubai Branch) Prime Star International Real Estate Brokers (PSIREB Knight Frank Research Reports are available at KnightFrank.com/Research RERA ORN: 11964 trading as Knight Frank with registration number 653414. Our registered office is: 5th Floor, 2, Emaar Business Park, PO Box 487207, Dubai, UAE. Regional offices in: Knight Frank UAE Limited (Abu Dhabi Branch) is a Botswana • Kenya • Malawi • Nigeria • Rwanda • • South foreign branch, with registration number 1189910. Our registered office is Unit 103, West Tower, Abu Tanzania • UAE • Uganda • Zambia • Zimbabwe Dhabi Trade Center, Abu Dhabi, PO Box 105374, Abu Dhabi, UAE.