OBSERVER Dubai Market Report Q4 / 2018 Services Report Highlights Valuations Mortgage and Secured Lending The performance of Dubai’s residential sector during to potential tenants. Average rents saw a further 4% the fourth quarter of 2018 saw a further decline in both decrease in the apartment market and a 3% decrease for Portfolio Valuations sales and rental values which was mainly attributable villas from Q3. Year-on-year performance for apartments to the increasing excess supply being released to the saw average rents decline by 12% from 2017, with villa Advisory and Research market. However, UAE Government departments rental rates decreasing 8% from the previous year. Financial Feasibilities recently announced a number of new initiatives, both legal and financial, which will have a knock on Transactions From Q3 to Q4 2018, the number of Highest and Best Use Studies effect on the real estate market. These include the transactions in relation to completed units increased by Market Research removal of the 20% cap on an individual bank’s real 22%, whilst for off-plan units the number of transactions Conceptual Advisory and Project Positioning Studies estate lending as a percentage of its total deposits. increased by 33% from the previous quarter – a significant Project Redevelopment/Repositioning Advisory uplift from Q3 which saw downward adjustments of 11% In terms of a potential market recovery, unless there is and 31% respectively. Year-on-year performance in terms of Investment Strategies – Acquisition and Disposal a significant decline in construction activity, a boost in transactional volumes saw a 7% uplift for completed units population and further economic stimulus created in the and a 13% decrease for off-plan units from the previous Sales and Leasing short term, it is unlikely the real estate market will reach year. Transaction values for completed units witnessed a 9% Commercial a demand and supply equilibrium in the near future. increase from 2017 whilst values for off-plan units decreased Industrial by 14% which would suggest buyers are less confident about Sales Prices The downward price corrections the off-plan sales market. Residential witnessed throughout 2018 continued in Q4, albeit at Retail a slightly slower pace than witnessed in Q3. Average Market Outlook We expect sales prices and rents to apartment sales prices were down 5% from the previous continue softening into 2019 as supply continues to enter Property/Facilities Management quarter, whilst average villa prices were down 3% the market – something which is unlikely to change in the from Q3. With regards to year-on-year performance, run up to Expo 2020. We also anticipate a limited number Commercial apartment sales prices were down 16% from 2017 of new off-plan launches, which is likely to mean that Mixed-Use whilst villa sales prices declined by 13% from 2017. the majority of transactions over the next 12 months will Residential relate to completed units. Rental Rates In Q4, as in previous quarters, we International Properties continued to witness downward pressure on rents. Read about our key residential market trends for 2019 on London Off-Plan Residential This was a consequence of additional supply pages 10 and 11. being added to the market, thus offering more choice International Homes and Investments International Relocations Residential Market Q4 2018 Snapshot Price Movements Completed Unit Transactions Apartments Villas Volumes Values QoQ −5% QoQ −3% QoQ +22% QoQ +9% YoY −16% YoY −13% YoY +7% YoY +9% Rental Movements Off-Plan Unit Transactions Apartments Villas Volumes Values QoQ −4% QoQ −3% QoQ +33% QoQ +31% YoY −12% YoY −8% YoY −13% YoY −14% The Observer - Dubai Residential Q4 2018 1 Completed units continue to prove Villas − Residential Sales Prices and Quarterly Change popular due to increased affordability 2,500 1% 0% Apartments: Quarter-on-Quarter movement: (–5%) Q3. Arabian Ranches and Jumeirah Park trailed close 2,500 1% 05 98 2,000 CHANGE PERCENTAGE 2 2 -1% , Year-on-Year movement: (–16%) behind with just a 1% and 2% decline respectively. The biggest , 2 2 0% decline was seen in Palm Jumeirah with a 7% drop from Q3. 2,187 -2% 05 98 The downward price corrections witnessed 2,000 CHANGE PERCENTAGE 2,035 2 2 -1% , 1,500 , 2 throughout 2018 continued in Q4, albeit at a slightly 2 -3% The biggest year-on-year price decline for villas was in 2,187 slower pace than witnessed in Q3. Average apartment -2% Palm Jumeirah with a 15% drop from 2017 and the 1,500 2,035 -4% sales prices were down 5% from the previous quarter, 1,000 -3% most resilient villa locations were The Meadows and The 48 1 03 while average villa prices were down 3% from Q3. , -5% 1,204 1,195 Springs with a 12% adjustment from the previous year. 1 1 35 36 88 91 , 42 23 985 -4% 9 9 AED SALES PRICES AED SALES 9 9 960 1 9 9 It is clear that capital depreciation has been fairly even 1,000 883 868 -6% 846 840 Apartments in areas such as Dubai Marina, Dubailand, 500 48 1 03 across the villa communities as villas were the first to feel , -5% 1,204 1,195 1 1 36 35 88 91 , 42 23 Discovery Gardens and Dubai Silicon Oasis continued 985 -7% 9 9 AED SALES PRICES AED SALES 960 9 9 1 the negative effects of the oil price declines in H2 2014. 9 9 868 883 -6% 840 to remain resilient, with the former experiencing a 1% 846 During Q3 2018, there was a higher decline in off-plan 500 -8% decline from the previous quarter and the latter three 0 sales as opposed to completed units. We predicted in our -7% locations witnessing 2% declines since Q3. The highest Arabian Ranches Jumeirah Park Palm Jumeirah The Lakes The Meadows/ Q3 Observer report that due to increased affordability, declines were seen in International City, Dubai Sports 0 The Springs -8% completed unit transactions would increase over the coming City and JVC, all with a 9% decrease in prices since Q3. Figures in AED/Sq AFtrabian Ranches Q1 2018Jumeirah Park Q2 2018Palm JumeQ3ira 2018h The Q4La 2018kes ThQoQe M Movementeadows/ quarters. In Q4 we saw an increase of 22% in transaction Source: REIDIN & Chestertons The Springs volumes over Q3 and a 7% uplift across 2018 as a whole. There are secondary areas where existing stock has Figures in AED/Sq Ft Q1 2018 Q2 2018 Q3 2018 Q4 2018 QoQ Movement suffereddue to the increasing amount of affordable Source: REIDIN & Chestertons units now available across Dubai which is adding further In 2017, 35% of all residential transactions were related to pressure to sales prices. completed units. In 2018, this figure increased to 41%, so it is clear there has been a shift in buyers’ interests. The lower The largest year-on-year price decline for apartments number of off-plan launches, coupled with the increased HOT TOPIC was seen in Discovery Gardens with a 25% drop from affordability of units available to occupy has motivated In late 2018, the UAE Central Bank announced the removal of the 20% cap of an individual bank’s real 2017. The most resilient apartment location was some buyers to consider properties that are move-in ready. estate lending as a percentage of its total deposits, which is to be replaced with a more flexible policy. The Dubailand with just a 5% adjustment from the previous year. However, overall, off-plan sales are still dominating the cap was brought in, not only in the UAE but across the GCC, to limit financial institutions’ exposure to real Villas: Quarter-on-Quarter movement: (–3%) market, with buyers enticed by attractive incentives estate and illiquid assets and to minimise soaring bad debt provision. It appears the control mechanism Year-on-Year movement: (–13%) including 5-year post-handover payment plans, rebates is to be lifted to facilitate banks to extend their lending, which is likely to have a further positive impact on of registration fees and guaranteed rental returns. The villa communities of The Meadows and The Springs transaction dynamics. displayed the most resilience with no price declines since Apartments − Residential Sales Prices and Quarterly Change 1,800 0% 1,6001,800 -1%0% 1,683 1,680 -2% 1,4001,600 1,643 -1% 1,515 -3% 1,683 PERCENTAGE CHANGE PERCENTAGE 1,680 -2% 1,2001,400 1,643 1,386 1,342 1,515 1,320 1,320 -4% 1,272 -3% PERCENTAGE CHANGE PERCENTAGE 1,0001,200 1,209 1,192 1,178 1,226 1,185 1,386 1,166 1,114 -5% 1,342 1,110 1,320 1,320 1,095 -4% 1,077 1,272 1,072 977 957 800 1,027 1,033 941 1,000 1,209 1,192 965 1,178 1,226 1,185 1,166 875 871 -6% 831 1,114 -5% 1,110 1,095 824 807 822 793 792 1,077 1,072 600 750 977 759 957 740 1,027 800 753 757 760 941 1,033 725 713 729 730 AED SALES PRICES AED SALES 965 716 704 -7% 652 875 871 -6% 631 636 831 824 807 822 793 589 566 400 792 600 750 759 740 753 757 760 725 516 713 729 730 AED SALES PRICES AED SALES -8% 716 704 -7% 652 631 636 589 200400 566 -9% 516 -8% 0 200 -10%-9% Business Bay Discovery Downtown Dubailand Dubai Marina Dubai Motor Dubai Silicon Dubai Sports International JLT JVC The Greens The Views 0 Gardens City Oasis City City -10% Figures Businessin AED/Sq Ft Bay Discovery Downtown Dubailand Dubai Marina Dubai Motor Dubai Silicon Dubai Sports International JLT JVC The Greens The Views Source: REIDIN & Chestertons GardensQ1 2018 Q2 2018 Q3 2018 Q4 2018 City QoQ Movement Oasis City City The Observer - DubaiFigures Residential in AED/Sq Q4 2018 Ft 2 The Observer - Dubai Residential Q4 2018 3 Source: REIDIN & Chestertons Q1 2018 Q2 2018 Q3 2018 Q4 2018 QoQ Movement 450,000 0% 400,000 -1% Villas − Residential Market Rent and Quarterly Change CHANGE PERCENTAGE Tenants re-negotiate or re-locate to make 350,000 -2% 300,000 savings on their annual rent -3% 250,000 -4% As in previous quarters, we witnessed continued downward appear to be most affected by market adjustments.