OBSERVER 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. and Park trailed close 2,500 1% 05 98

2,000 PERCENTAGE CHANGE 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 with a 7% drop from Q3. 2,187 -2% 05 98

The downward price corrections witnessed 2,000 PERCENTAGE CHANGE 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 , 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 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 1,680 -2% 1,2001,400 1,643 1,386 1,342 1,515 1,320 1,320 -4%

1,272 -3% PERCENTAGE CHANGE

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% 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 PERCENTAGE CHANGE 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. There has 240500,,000000 0% pressure on rents in Q4. This was a consequence of additional been a year-on-year recorded drop of 16% for studios followed -5% supply being added to the market, thus offering more choice by a year-on-year 12% rental decrease for 1 bedroom units. 145000,,000000 -1% AED RENTAL PRICES AED RENTAL -6% to potential tenants. Average rents have seen a further 4% 100,000 PERCENTAGE CHANGE 350,000 -2% decrease in the apartment market and a 3% decrease for villas Villas: Quarter-on-Quarter movement: (– 3%) 3 5000,,000000 -7% from Q3. Year-on-Year movement: (– 8%) -3% 250,00 0- -8% As a result of these adjustments, many tenants are making In the villa market, the biggest average rental decline was Arabian The The The Lakes Victory JVT Jumeirah Jumeirah Palm -4% 200,000 Ranches significant savings on their annual rents by either seen in Al Furjan at 7% from Q3 with the most resilient Springs Meadows Heights Islands Golf Estates Jumeirah -5% re-negotiating with their current landlords on price and terms, locations being Palm Jumeirah, , The Lakes 150,000 Figures in AED/Sq Ft QoQ Movement and The Springs with declines of 1% from Q3. PRICES AED RENTAL 2BR 3BR 4BR 5BR re-locating within their existing district or moving out to a Source: 100 Propertyfinder,000 & Chestertons -6% cheaper location. Landlords have had to become increasingly Year-on-year, the biggest average rental adjustments were flexible as the market becomes more competitive. 50,000 -7% seen at Palm Jumeirah and Al Furjan – both with a 13% drop from 2017. The most resilient locations in 2018 were JVT, - -8% Apartments: Quarter-on-Quarter movement: (– 4%) Arabian The The The Lakes Victory Al Furjan JVT Jumeirah Jumeirah Palm Year-on-Year movement: (– 12%) Jumeirah Golf Estates and The Lakes witnessing 4% declines Ranches Springs Meadows Heights Islands Golf Estates Jumeirah from the previous year. In the apartment market, the biggest declines were seen in Figures in AED/Sq Ft 2BR 3BR 4BR 5BR QoQ Movement Dubai Marina, Dubai Silicon Oasis, , Due to additional stock being available and limited new Source: Propertyfinder & Chestertons demand, landlords have had to compete, not only on rental Dubailand 450,000 and International City – all of which saw 5% 0% declines from Q3. Established communities, offering good rates but have had to introduce incentives to attract and facilities 400,00 at0 affordable rents such as DIFC, Business Bay and retain tenants. These incentives include multiple rent cheques,-1%

some of which even extend to monthly payments, as well as PERCENTAGE CHANGE Discovery 350,000 Gardens witnessed a small movement with a 1% -2% HOT TOPIC decline from Q3. rent-free periods. Other incentives have included the waiver of Another potential change to the rental sector in Dubai is the holiday let market which has been legal in the 300,000 security deposits, multiple cheques to cover utility bills, -3% Emirate since 2016. As landlords tackle weak demand for annual contracts and falling rents, short term holiday Year-on-year 250,000 figures show that DIFC was the most resilient short-term leases and in some cases we have witnessed landlords covering the cost of agency fees. -4% rentals could prove very lucrative, especially in popular locations, particularly in the run up to Expo 2020. location 200,0 0to0 rental declines most likely due to its unique positioning within the CBD where limited new stock has been We expect rents to continue softening into 2019 as a -5% added. 150, 000 AED RENTAL PRICES AED RENTAL consequence of additional supply being added to the market 100,000 -6% As noted in our Q3 Observer report, there is an increasing stock where tenants are now seeing better value for money and 50,000 greater levels of availability across the board. -7% Figures in AED/Sq Ft Studio 1BR 2BR 3BR QoQ Change of smaller format apartments and studio apartments which Source: Propertyfinder & Chestertons - -8% ApartmentsArabia n− ResidentialThe The MarketThe Lake Rents Vict oandry A lQuarterly Furjan JVT ChangeJumeirah Jumeirah Palm Ranches Springs Meadows Heights Islands Golf Estates Jumeirah 250,000 0% Figures in AED/Sq Ft 2BR 3BR 4BR 5BR QoQ Movement Source: Propertyfinder & Chestertons -1% 200,000 Figures in AED/Sq Ft Studio 1BR 2BR 3BR QoQ Change Source: Propertyfinder & Chestertons

-2% PERCENTAGE CHANGE

-3% 150,000 250,000 0% -4% -1% 100,000 200,000 -5% AED RENTAL PRICES AED RENTAL

-2% PERCENTAGE CHANGE -6% 50,000 -3% 150,000 -7% -4% -8% 1-00,000 Business Bay DIFC Discovery Marina Dubai Dubai Dubailand International JLT JVC The Greens The Views Dubai -5%

AED RENTAL PRICES AED RENTAL Gardens Dubai Silicon Oasis Sports City City Motor City -6% 50,000 Figures in AED/Sq Ft Studio 1BR 2BR 3BR QoQ Change Source: Propertyfinder & Chestertons -7%

The Observer - - Dubai Residential Q4 2018 4 The Observer - Dubai Residential Q4 2018 -8% 5 Business Bay DIFC Discovery Downtown Dubai Marina Dubai Dubai Dubailand International JLT JVC The Greens The Views Dubai 250,000 Gardens Dubai Silicon Oasis0% Sports City City Motor City

-1% 200,000

-2% PERCENTAGE CHANGE

-3% 150,000

-4%

100,000 -5% AED RENTAL PRICES AED RENTAL

-6% 50,000 -7%

- -8% Business Bay DIFC Discovery Downtown Dubai Marina Dubai Dubai Dubailand International JLT JVC The Greens The Views Dubai Gardens Dubai Silicon Oasis Sports City City Motor City Completed unit transactions displayed increasing resilience in Q4

Completed and Off Plan Units Quarter-on-Quarter movement values (Completed) +9% Year-on-Year movement values (Completed) +9% Quarter-on-Quarter movement volumes (Completed) +22% Quarter-on-Quarter movement values (Off-plan) +31% Year-on-Year movement volumes (Completed) +7% Year-on- Year movement values (Off-plan) -14% Quarter-on-Quarter movement volumes (Off-plan) +33% Year-on- Year movement volumes (Off-plan) -13% Transactional values for completed properties showed an increase of 9% from AED 4.93 billion in Q3 to AED 5.39 billion The completed unit market continued to exhibit increasing in Q4. Additionally, there was a 31% uplift in values for off-plan resilience to the decline in transactional volumes in Q4 with a properties in Q4 which is in stark contrast to the previous quarter 22% increase over Q3. We expect this trend to gain momentum where there was a decrease of 33% in overall values from Q2. in 2019 as developers continue offering attractive incentives such as 5% down payments and long-term payment plans. In Q4, Dubailand had the highest number of completed unit transactions and the highest value of completed unit Despite the fact the number of off-plan transactions was 6,000 transactions. up 33% on Q3, the year-on-year figure was still 13% down from 2017 which demonstrates that buyers may be more 5,000 In Q4, International City had the highest number of off-plan inclined to take the lower risk option of property that is move- transactions, whilst Downtown Dubai had the highest value of in ready so there are no issues with delayed handovers. 4,000 off-plan transactions.

Volume of Residential 3,000 Transactions Q4 2018 (Number of Units) Completed Properties O-plan HOT TOPIC 6,000 2,000 Interest rate hikes could pose a potential threat to investors in the UAE. In October 2018, the FED increased 1,000 interest rates by 25 basis points – with another hike taking place in December 2018. As the Dirham is 5,000 pegged to the US dollar, interest rates rose in the Emirates as well. Two additional rate hikes are expected in 4,000 0 the US during 2019, which will immediately correlate to interest rate increases in the UAE. Q3 2018 Q4 2018 3,000 Completed Properties

2,000 O-plan

1,000 Figures in AED/Sq Ft Completed Properties O-plan Source: REIDIN & Chestertons 0 Q3 2018 Q4 2018

Value6,000 of Residential Transactions Q4 2018 (AED Billions) Figures in AED/Sq Ft Completed Properties O-plan 5,000 Source: REIDIN & Chestertons

4,000

3,000 Completed Properties

2,000 O-plan 5.82 5.39 1,000

0 Q3 2018 Q4 2018

5.82 5.39

Figures in AED/Sq Ft Completed Properties O-plan Source: REIDIN & Chestertons

The Observer - Dubai Residential Q4 2018 6 The Observer - Dubai Residential Q4 2018 7

5.82 5.39 Q4 2018 Sales Transactions Q4 2018 Sales Transactions Completed Units Off-plan Units

Top 10 Areas Based on Transaction Volumes (Number of Units) Top 10 Areas Based on Transaction Volumes (Number of Units)

Dubailand International City DubailandDubailand Dubai Marina InternationalInternationalDubailand CityCity DubaiDubai MarinaMarina International City DubailandDubailandMBR City InternationalInternational CityCity MBR City Jumeirah Village Circle BusinessMBR CityBay JumeirahJumeirah VillageVillage CircleCircle BusinessBusiness BayBay Palm Jumeirah Downtown Dubai PalmPalm JumeirahJumeirah DowntownDowntown DubaiDubai Emirates Living Jumeirah Village Circle EmiratesEmirates LivingLiving JumeirahJumeirah VillageVillage CircleCircle Dubai Sports City The Lagoons DubaiDubai SportsSports CityCity TheThe LagoonsLagoons Downtown Dubai Dubai Marina DowntownDowntown DubaiDubai DubaiDubai MarinaMarina JumeirahJumeirah LakeLake TowersTowers DubaiDubai SouthSouth Business Bay PalmPalm JumeirahJumeirah BusinessBusiness BayBay PalmPalm JumeirahJumeirah 100100 200200 300300 400400 500500 600600 0 100 200 300 400 500 600 700 800 900 100100 200200 300300 400400 500500 600600 00 100100 200200 300300 400400 500500 600600 700700 800800 900900 Source: REIDIN & Chestertons Source: REIDIN & Chestertons Source:Source: REIDINREIDIN && ChestertonsChestertons Source:Source: REIDINREIDIN && ChestertonsChestertons

Top 10 Areas Based on Transaction Values (in million AED) Top 10 Areas Based on Transaction Values (in million AED)

Dubailand Downtown Dubai DowntownDowntown DubaiDubai PalmDubailandDubailand Jumeirah MBR City MBRMBR CityCity PalmPalmDubai JumeirahJumeirah Marina Dubailand DubailandDubailand EmiratesDubaiDubai MarinaMarina Living Business Bay BusinessBusiness BayBay DowntownEmiratesEmirates DubaiLivingLiving The Lagoons TheThe LagoonsLagoons JumeirahDowntownDowntown Village Dubai DubaiCircle International City International City JumeirahJumeirahArabian VillageVillage Ranches CircleCircle InternationalDubai Marina City Arabian Ranches Dubai Marina ArabianBusiness Ranches Bay PalmDubai Jumeirah Marina BusinessBusiness BayBay Palm Jumeirah Al Furjan JumeirahPalm Village Jumeirah Circle AlAl FurjanFurjan Jumeirah Village Circle Dubai Sports City JumeirahBluewater Village Islands Circle DubaiDubai SportsSports CityCity BluewaterBluewater IslandsIslands 200200 400400 600600 800800 1,0001,000 0 200 400 600 800 1000 1200

Source: REIDIN & Chestertons 200200 400400 600600 800800 1,0001,000 Source: REIDIN & Chestertons 00 200200 400400 600600 800800 10001000 12001200 Source:Source: REIDINREIDIN && ChestertonsChestertons Source:Source: REIDINREIDIN && ChestertonsChestertons The Observer - Dubai Residential Q4 2018 8 The Observer - Dubai Residential Q4 2018 9 Predicted key market trends for Dubai’s residential sector in 2019

Financial Technological Real Estate Design

As a result of oversupply and interest rate hikes, The removal of the 20% cap on banks’ real estate Technological innovation will evolve real Developers will need to constantly evolve their ideas developers and lenders need to be proactive to lending will affect the market, as it is clear this estate dynamics. For example, the Dubai Land and strategies to meet consumer demand. One of ensure there are measures in place to keep the real has been introduced to provide more flexibility Department, in cooperation with Smart Dubai, is the key trends that emerged towards the end of estate market within reach of those that are open to individual banks with the aim of helping them looking at how to adopt Blockchain technology 2018 in the UAE, is off-plan developers decreasing to invest. For example, developers introduced a extend their lending to buoy the real estate sector. within its electronic real estate platform. Although the size of units to cater to a new market segment number of flexible payment plans in 2018 due to this initiative is still in its early stages, it has the looking for more affordable housing. By lowering the inability of the market to absorb the additional potential for multiple applications that include ticket prices, the aim appears to be to increase stock being launched/delivered. We predict there property purchases, property mortgages, utilities absorption rates. could be keen competition between developers to payments and property and facilities management. keep plying the market with attractive incentives as oversupply continues to dominate the agenda.

The Observer - Dubai Residential Q4 2018 10 The Observer - Dubai Residential Q4 2018 11 Contact Us

Nick Witty, BSc (Hons) MRICS Mena Head Office Managing Director 1802, Blvd. Plaza Tower 1 MENA Sheikh Mohammed Bin Rashid Blvd. [email protected] Downtown Dubai PO Box 28336, Dubai Adam Wilson, BSc (Hons) MRICS ACIArb Office: +9714 381 0200 Director Fax: +9714 325 3359 Head of International Valuations Email: [email protected] [email protected]

Dubai Office Vladimir Cvetinovic, MRICS 106, Rasis Business Center, Al Barsha 1 Associate Director PO Box 283361, Dubai Valuations & Advisory - Abu Dhabi United Arab Emirates [email protected] Office: +9714 392 7818 Email: [email protected]

Ivana Gazivoda Vucinic Head of Consulting Abu Dhabi Office MENA Office M01, Mezzanine Floor [email protected] Al Ghazal Building (Above Al Hilal Bank) Khalifa Park PO Box 128983, Abu Dhabi Ellen Sleutjes United Arab Emirates Head of Property Management - UAE Office: +9712 447 3100 [email protected] Fax: +9712 441 6200 Email: [email protected]

Bahrain Office Maz Business Centre The Lagoon Amwaj Island Office: +973 1603 0646 Email: [email protected]

Disclaimer: All articles and data presented herein is intended for information purposes and has been compiled from sources deemed reliable including the Valu- ations and Research Department of Chestertons, sales and leasing staff, published data, and secondary sources. Though information is believed to be correct, materials presented is subject to errors, omissions, changes, or withdrawal without notice. www.chestertons-mena.com