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Property prices may recover by 2012

Residential market in Dubai will continue to experience a situation of oversupply with prices not expected to recover before 2012, Jones Lang LaSalle (JLL) said on Sunday.

“Although there are recent pockets of stabilisation for Dubai’s higher end residential product, lending will remain a key factor in market recovery. The residential market will likely see improved lending during 2011 as more banks are injecting liquidity into the mortgage market,” the global real estate consultants said in its fourth quarter report.

A total of approximately 7,800 units were completed in 2010, bringing the total residential stock to around 309,301 units as at the end of 2010. A further 25,500 units are expected to be completed in 2011. Apartments will constitute of 79 per cent of total residential stock by the end of 2011.

“Some major residential projects have restarted and are scheduled for completion for the first half of 2012.
Although some construction delays are likely, no major cancellations are expected of projects scheduled for 2011 as increased certainty returns to the market,” the report said, adding Nakheel’s projects in Jumeirah Park, Dubai Waterfront, Jumeirah Heights and Jumeirah Village are scheduled to restart sometime in 2011.

Marwan bin Ghalitha, CEO, Real Estate Regulatory Agency, said recently that 202 projects had been cancelled in 2010 and a number of project cancellations were likely in 2011.

Apartment rents, JLL said, on average decreased by eight per cent year-on-year (y-o-y), while quarter-on-quarter decline was of four per cent. Villa rents dropped 11 per cent (y-o-y) and q-o-q decrease was of one per cent.

However, average asking prices declined marginally since the third quarter with achieved prices falling two per cent to Dh790 per square foot.

The total value of residential transactions plunged 65 per cent compared to 2009 with the number of residential transactions declining 53 per cent.

“A general easing of lending conditions is likely to result in an increase in sales activity in 2011,” JLL said.

Office vacancies on the rise

The current oversupply situation in the office market is likely to continue with vacancy rates expected to increase through the year across the city, putting downward pressure on rent.

“Relocation to better grade properties in better localities is expected with older and inferior properties facing higher vacancy rate and rental decline. Rentals are close to the bottom in the less popular area such as in Jumeirah Lakes Towers (JLT), but CBD rental are expected to drop further in 2011,” the report added.

Total office stock as at the end of the fourth quarter was approximately 55.6 million square feet. Only 60 per cent of the 20 million square feet was expected to be released in 2010 was completed, including new completions in Business Bay, JLT and Sheikh Zayed Road in the fourth quarter.

“We expect 2011 new supplies to be around 12 million square feet, broadly similar with 2010 figure. Further postponement and cancellation of projects are expected, which might reduce 2011 completion figure,” JLL said.

Tenant demand remains focused on single ownership space within the CBD area (from the World Trade Centre to Downtown Burj Khalifa), with very little demand for strata titled space or for that in less established locations.

City-wide vacancy rates increased to 41 per cent and are expected to exceed 45 per cent over the next year as new supply continues to be released.

Office rents in CBD decreased by 21 per cent in the fourth quarter to around Dh150 per square feet, while average city-wide rents decreased by 30 per cent to around Dh105 per square feet.

Capital values declined by over 20 per cent y-o-y and a q-o-q drop of 14 per cent to Dh1,050 per square feet, the report said.

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