The Dubai residential market witnessed solid growth in off-plan sales transactions during the last quarter of 2017. According to a recent report by global real estate consultancy firm CBRE, off-plan sales accounted for more than 65 per cent of total sales transactions for the year ending 2017, an increase of approximately 56 per cent in the number of transactions and 44 per cent in terms of total value, as compared to 2016.
“The sales market has witnessed an improvement in transaction numbers during 2017, with off-plan properties remaining favourable amongst investors, underlining the speculative nature of the local market,” said Mat Green, Head of Research & Consulting UAE, CBRE Middle East.
Business Bay, JVC and Downtown Dubai continued to dominate the market, as all three districts recorded more than 2,000 off plan transactions for the year, Green said.
“Whilst off-plan residential transaction volumes registered strong momentum during 2017, competition is likely to mount in 2018, with a huge number of new units set for delivery and with further project launches expected. Around 30,000 new units are anticipated to complete this year and we expect to see increasing pressures for the off-plan sector and the wider market, particularly with the recent introduction of VAT,” he added.
In view of the continued slowdown in residential market, caution amongst prospective developers and owners is expected to heighten, and developers are likely to be more guarded in their development and sale decisions.
Whilst residential sales prices entered into a period of decline during 2015, the rate of decline for Q4 2017 has actually been negligible, at just 0.5 per cent from the last quarter.
According to the report, close to 30,000 new units were added during the course of the year, whilst over 90,000 new homes (apartments and villas) could enter the market during the period 2018 to 2020, depending on construction delays.
“The market continues to see a shift in focus, as developers seek to readdress the supply and demand gap in the affordable housing sector. Government approval of the low-income housing policy in 2017 will obviously create tangible opportunities in this space and help to rebalance supply towards the demographics of the Emirate. Historical high rental rates had driven a large number of Dubai’s workforce to seek homes in other emirates and to then commute to Dubai. This group presents a notable opportunity for Dubai’s developers to attract back these residents,” Green said.
Looking at the office sector, prime rentals have been relatively steady over the past three years, although we are now starting to see some modest declines, with a -2% drop quarter on quarter. However, sustained occupier demand for good quality accommodation means prime rentals are likely to stay relatively firm in the coming quarters.
Pre-leasing activity during the same period also underlines the presence of latent demand for large, single owned accommodation in locations such as the CBD, DIFC and TECOM (A & B).
“We anticipate, however, that prime rentals will come under pressure over the next 24 months as new supply is delivered to the market, particularly in areas around the DIFC and the CBD,” Green pointed out.
“The available office space is currently outstripping demand, as new completions add further pressure to already high vacancy rates, in particular lower for secondary quality and strata offices. This trend is likely to continue in the short terms with 0.9 million sqm of new supply set to be delivered during 2018-2020,” Green added.
By addressing the shortfalls in the quality and ownership structures currently present in the market, future landlords have the opportunity to develop offices that meet the market requirements and increase the probability of attaining higher occupancies in their stock. Of the new office space to be delivered over the next two years, more than half will be held on multiple ownership title, whilst the balance is single ownership title.