OBSERVER Dubai Residential Report Q2 2020 Market Overview Dubai’s residential sector faced a challenging second quarter, with social distancing measures, coupled with Covid-19’s economic impact, affecting market performance. Average apartment rents fell by 3.9% quarter-on-quarter (q-o-q) and 9.5% year-on-year (y-o-y), with average villa rents seeing more moderate declines of 2.6% q-o-q and 7.2% y-o-y. While social distancing policies broadly restricted the rental market over April, activity recovered in May, driven by tenants looking to reduce rental costs or take advantage of lower rents to upsize. The impact on residential prices was less pronounced, with the average price of recorded off-plan transactions seeing a slight uplift, while both new listing and completed unit prices fell. On average, Chestertons estimates that apartment and villa prices saw quarterly falls of 2.6% and 1.2%, respectively. A total of 5,233 residential units were sold over Q2, representing a quarterly decline of 45%, with corresponding transaction value falling by 40% to AED 9.06 billion. When looked at on a monthly basis, June transaction figures were encouraging and point towards more typical sales volumes over the third quarter. While clearly a testing period, there were also positives to draw from Q2. Developers held back new off-plan sales launches, a move that bodes well for more balanced supply and demand dynamics medium-term. Dubai also took a step towards greater market transparency, with the routine release of its official house price index, Mo’asher, likely to give rise to greater investor confidence. The outlook for Dubai’s residential market will be closely tied to the performance of the wider economy. Over the second half of 2020, we expect residential prices and rents to fall further, driven by a declining expatriate population and an overall private sector contraction. Assuming a return to economic growth next year, it is likely that residential prices will see greater stability over 2021. OBSERVER - Dubai Residential Report Q2 2020 2 Q2 Highlights Key Indicators Economic Snapshot Dubai’s economy was impacted by measures introduced to counter Apartments Covid-19 over the second quarter, with a further decline in GDP Prices: expected to follow Q1’s 3.5% contraction. Tourism-related sectors and physical retailers were acutely affected by the suspension of Q-o-Q Change: –2.6% tourist arrivals coupled with the temporary closure of hotels and malls. Y-o-Y Change: The proactive policy response from both UAE and Dubai authorities, –9.8% however, eased the overall economic impact, with the UAE’s central Rents: bank (CBUAE) predicting a recovery in economic activity over the second half of 2020. The CBUAE specifically cited the Targeted Q-o-Q Change: –3.9% Economic Support Scheme (TESS), along with economic stimulus Y-o-Y Change: –9.5% packages announced by both local and federal governments, as likely to weigh in positively on growth once the pandemic subsides. Sales Prices Villas Average apartment prices fell by 2.6% from Q1 2020, an increase in Prices: the rate of decline seen over Q1, with average villa prices seeing a Q-o-Q Change: –1.2% more moderate fall of 1.2%. On an annual basis, average apartment prices declined by 9.8%, with villas falling by 7.1%. There was often Y-o-Y Change: –7.1% a gap witnessed between buyer and seller price expectations over Rents: Q2 and average prices will likely decline further next quarter as transaction volume gains pace. Q-o-Q Change: –2.6% Y-o-Y Change: –7.2% Rental Rates Average apartment rents fell by 3.9% over Q2, following more moderate declines of 1.5% the previous quarter, leading to a 9.5% fall from Q2 2019. Average villa rents proved more resilient, falling Sales Volume by 2.6% and 7.2% on a quarterly and annual basis, respectively. 5,233 units Covid-19’s economic impact will continue to challenge rents over 2020, with falls in private sector salaries, rising unemployment and a –45.4% Q-o-Q reduced population set to place downward pressure on rates. –39.6% Y-o-Y Off-plan Sales Launches Developers refrained from launching new projects for sale over the Sales Value second quarter, leaving total off-plan sales launches at 4,458 units for H1 2020. This compares to 12,222 in H1 2019 and 21,435 in H1 AED 9.06 billion 2018. The reduction in new sales launches is a welcome step towards –39.9% Q-o-Q more balanced supply and demand dynamics medium-term. –36.6% Y-o-Y Transactions Volumes. Overall residential transactions reached 5,233 units over the second quarter, representing a near 40% fall on an annual basis Off-plan Launches and a 45% fall q-o-q. 4,458 units (H1 2020) Values. The total value of residential transactions stood at AED 9.06 –63.5% Y-o-Y billion, a near 40% fall on a quarterly basis and a 37% fall y-o-y. OBSERVER - Dubai Residential Report Q2 2020 3 Covid-19’s impact disrupted Dubai’s residential sector, affecting agency and developer activity over Q2 Measures introduced to combat Covid-19 restricted broad from AED 558 to AED 524 per sq ft, representing a decline of activity over the second quarter, significantly reducing 6.1% over Q2. transaction volumes, especially across April and May. Limited sales activity can make accurately assessing average prices Motor City saw a 5.3% drop from the previous quarter, with challenging, with the market witnessing a divergence in trends prices decreasing from AED 565 to AED 535 per sq ft. between average off-plan transaction prices and average listing and completed property prices over Q2. Locations which witnessed more moderate declines over Q2 included The Greens and Business Bay, with prices falling by just We estimate that average apartment prices fell 2.6% from 0.5% and 1%, respectively. Average apartment prices across Q1 2020, an increase in the rate of decline from the previous Dubai Marina also performed comparatively well, declining by quarter, with average villa prices seeing a more moderate fall of 1.1% to AED 1,009 per sq ft, down from AED 1,020 over Q1. 1.2%. On an annual basis, average apartment prices declined by 9.8%, with villas falling by 7.1%. On an annual basis, Business Bay and The Views saw the most moderate declines, at -1.4% and -3.7%, respectively, following We expect prices to face further declines over the second half Business Bay recording a minor uplift in first quarter prices, and of 2020, with a subdued economy and a likely reduction of having seen stable prices over the preceding two quarters. the emirate’s population, both key drivers of Dubai residential Motor City, Dubai Silicon Oasis and Jumeirah Village Circle prices, set to hamper market performance. (JVC) saw the highest declines on an annual basis, with average prices at Motor City falling from AED 700 per sq ft in Q2 2019 A notable fall in new off-plan sales launches, which totalled to AED 535. 4,458 units over the first half of 2020, compared to 12,222 units in H1 2019 and 21,435 units in H1 2018, bodes well for Villas: supply and demand dynamics and should serve to support Q-o-Q Change: –1.2% residential prices medium-term. Y-o-Y Change: –7.1% Units Launched for Sale Off-plan and % Change All areas saw declines in average prices over the second quarter, within a bracket of -0.4% to -2.2% q-o-q and -4.6% to -12.9% 30000 20% y-o-y. 10% 25000 0% Palm Jumeirah saw the steepest quarterly price fall, with 20000 -10% average values reaching AED 1,820 per sq ft, down from AED -20% 1,860, a decline of 2.2%. This follows a price decline of less 15000 -30% than 1% over the previous quarter. The Meadows/The Springs 10000 -40% prices saw a fall of 2% q-o-q, following a 1.2% rise the previous -50% 5000 quarter, with average prices reaching AED 815 per sq ft. -60% 0 -70% The Lakes, Arabian Ranches and Jumeirah Park all witnessed H1 2016 H1 2017 H1 2018 H1 2019 H1 2020 quarterly declines of less than 1%, at -0.4%, -0.6% and -0.7%, Source: Units launched H-o-H Change respectively. Average prices at The Lakes stood at AED 980 per REIDIN & Chestertons for sale (O -plan) sq ft, down from AED 1,038 in Q2 2019, with average prices at Arabian Ranches and Jumeirah Park standing at AED 790 and Apartments: AED 720, respectively. Q-o-Q Change: –2.6% Y-o-Y Change: –9.8% The Meadows/The Springs saw the lowest annual decline, at -4.6%. Jumeirah Park was the only area to see a double-digit The largest price declines in the apartment segment were fall in average prices, falling from AED 827 per sq ft in Q2 2019, witnessed in Discovery Gardens, with average prices falling representing a decline of 12.9%. OBSERVER - Dubai Residential Report Q2 2020 4 HOT TOPIC Dubai embraces greater market transparency Q2 saw the release of the second and third editions of Mo’asher, Dubai’s official house price index, marking a further step towards greater transparency within the emirate’s residential sector. The index, which is jointly produced by the Dubai Land Department (DLD) and listings portal Property Finder, tracks property prices from a base year of 2012.