Core – Savills Dubai residential market Q1 / 2016 report

This report was made by Core ME. As one of the largest UAE property services, Core, UAE associate of Savills, combines expert local market insight with the international strength provided by 600 offices globally.

Although Dubai is not directly reliant on the hydrocarbon sector, there is no doubt that the downturn in global oil prices will have at least some impact on the real estate economy, at least in the short to medium term. This, together with a raft of other factors such as a generous supply pipeline and the strengthening Dirham against a range of traditional investor economies, is starting to impact the residential sector albeit relatively modestly at this stage. While Dubai still holds a favoured position for investors in dollar-driven economies, investor sentiment across the GCC is generally weakening at present, with the result that local and regional investors together with end users are starting to sense a strengthening in their bargaining position and as a result prices are coming under some downward pressure.


Market performance

Given the drop in prices, the demand from international investors for Dubai real estate remains strong with data from Dubai Land department indicating an 8% rise in average transaction values in 2015 compared to 2014. Even within the context of a strengthening dollar against the Rupee, Indian nationals topped the list of expatriate real estate buyers in 2015, with United Kingdom citizens in second place and Pakistanis third.

Average transaction values for all three nationalities grew during 2015 but Russian investment activity in particular showed a major decline as oil prices, exchange rates and sanctions started to have an impact on their investment capabilities. GCC and other Arab nationals continue to invest in Dubai as it is still considered a safe haven against the backdrop of geopolitical instability, and although the impact and opportunity has been much debated in the Dubai press, the lifting of sanctions against Iran may drive some inward investment for Dubai real estate in particular.

Close examination of purchase data for GCC buyers reveals average transactions to be in the range of AED 3 to 4 million, indicating upscale transactions and therefore more likely to be second home purchases than for pure investment purposes, although the role of real estate as a solid long term investment is well understood by this group. Average transaction values for ‘Other Arabs’ and expatriates, typically range between AED 1.8 to 2.5 million indicating other motivations including investment, the ability to gain a residence visa as well as for primary and secondary homes. Although a highly signicant buyer group and third in terms of total investment, Pakistani buyers had the lowest average transaction value of AED 1.4 million, largely motivated by investment and visa drivers. Overall, more than 150 nationalities invested in the emirate’s real estate sector in 2015, with total transactions topping Dh135 billion.

The diversity of investors in Dubai’s relatively small real estate market is an overwhelming afrmation of its maturing real estate status and global reach. General market factors underpinning residential real estate such as the 7% growth in job creation in 2015 were strong, and were further supported by the 2016 Dubai budget which proposes increases in infrastructure and social development spending together with the creation of 3,000 new jobs for UAE citizens.



Pipeline supply gures are difcult to gauge precisely as many major projects have delayed or amended delivery schedules in response to contractor pressures and market dynamics, with for example, only around 8,000 residential units delivered in 2015 compared to the 25,000 units originally projected for completion. Despite claims that the number will be much higher, it is likely that only between 9,000 to 10,000 units will be delivered in 2016, a slowdown that will help to moderate potential oversupply concerns.

The anticipated delivery of new supply in 2016 within the major residential districts is sufciently modest that it will exert only a small amount of downward pressure and it is anticipated that new supply in emerging locations such as Jumeirah Village and Dubailand will be absorbed relatively easily provided the units are priced competitively. However, it should be pointed out that a purely statistical analysis of residential unit prices can be misleading in current circumstances given that developers are increasingly seeking to meet new market sectors by providing more units at the lower end or ‘affordable’ end of the market.

This has the impact of bringing down average transaction values in a market that is perfectly healthy, and to the unwary could signal market movements that are not as they may seem. It remains to be seen how this hidden impact will play out through 2016.



Villa sales prices during 2015 showed a steady decline in in established locations with a notable exception in the prime area of Jumeirah. The decline was partly due to the introduction of smaller, more ‘efcient’ units in new outer zones, competing with older and more expensive stock in established areas. In contrast, the rise in Jumeirah prices reects both a less liquid market with fewer transactions, very low levels of new supply, and less elasticity of the demand and owners’ behaviour to regional and global economic or political factors, due to the ownership restrictions to local buyers.

The relative resilience of prices in most of the established ultra prime areas is another interesting aspect, explained by the lack of available land to create new supply in these areas, and the long term investment horizons of a majority of owners of prime residential real estate in Dubai – contrasting with the many investors-speculators of pre-2008.

In the apartment sector there has also been a marginal decrease across the board in average transaction prices partly as a result of smaller, more affordable units entering the market, the new supply adding slight downward pressure, and in some areas issues such as trafc congestion coming to the fore (Dubai Marina and JBR in particular). Downtown and Business Bay were particularly affected by the growth in supply during 2015 while Palm Jumeirah and DIFC could hold on to their prices by virtue of their premium location, limited supply and built quality.


Rental Rates

Commensurate with sales prices, rental rates across Dubai generally continued to ease downwards in the second half of 2015, albeit marginally, but mainly as a result of many of the same pressures. The growth in new supply was the major factor in most locations and the ability of tenants to negotiate with landlords in what has increasingly become a ‘renters market’. Villa rental rates showed higher percentage falls (ranging between 3% to 12%) than apartment rates with the exceptions of Emirates Hills, an upscale area in which the growth of supply has been the most constrained.

Prime apartment and upper mid-range districts such as DIFC Downtown, Dubai Marina and JBR experienced the highest rental falls of about 5-6% in 2015, while apartments in most districts displayed a marginal drop of 4% or less. However, The Greens and Business Bay were seen as exceptions with prices remaining constant, the former owing largely to its value for money products, central location and ease of connectivity while the latter attributed to its infrastructure and connectivity improvements

According to Savills World Research, for a salaried, middle-income executive (‘mainstream’*), Dubai is one of the most affordable cities in which to purchase a home compared to other major international hubs across the globe. However, this makes it also one of the most expensive cities to rent, with gross rental yields close to 9%.



Hydrocarbon prices, possible oversupply, strong dollar and regional geopolitical uncertainty coupled with an overall bearish perception in the market are likely to place moderate downward pressure on the Dubai residential sector during 2016.

However a number of balancing factors such as the release of Iranian equity, a possible bounce in oil prices, government driven job creation, expo 2020 and a growing pool of investors looking to re-enter the market at the right price and time, along with end users making a shift from renting to owning due to the penalising high level of yields, are likely to come in to play towards the end of the year.

In the mid-term and until 2020 other key historical drivers of the Dubai residential market such as its perception as a regional ‘safe haven’, the ability to obtain a visa, the variety of investment options and the pleasures of a second home in a warm, sunny climate with improving infrastructure, will continue to ensure that Dubai remains an attractive proposition for residential investment for a wide range of regional and global investors.

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