Lack of new supply boosts demand for Dubai villas

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DUBAI — A boost in villa demand has more than offset a continued decline in apartment sales to lift Dubai’s listless residential market, Landmark Advisory, a real estate consultancy, said 
on Monday.
“There has been a solid rise in interest in residential sales across Dubai in certain established and prime residential areas such as Downtown Dubai and Emirates Living including Lakes, and Meadows,” Landmark said in its Market Snapshot.

Across Dubai, apartment sales have declined by two per cent, and villas have continued to perform well due to the lack of forthcoming supply in 2011 – the result transpiring to a quarter on quarter increase of 2.8 per cent.

The trend is discernible in Emaar’s second quarter performance which showed an 85 per cent decline in apartment sales and a surge in demand for villas and commercial plots.

Landmark said over the past 12 months, it had observed three distinct submarkets emerging within Dubai’s residential market; prime, secondary and tertiary.

“Based on transactional data and third-party research, capital values continue to decline in tertiary areas with an imbalance between supply and demand,” said Michael Michael, Director of Landmark Properties.

Markets such as Discovery Gardens and International City have witnessed the largest decline, while prime locations such as Downtown Dubai have witnessed the least. According to Michael, the reason prime markets have performed so well is predominately due to minimal supply.

Landmark research suggests that office market in Dubai remains oversupplied – with the current supply at 5.2m sq ft and another two million sq ft to be delivered by 2014. To date, as market conditions continue to favour tenants with landlords’ willingness to provide incentives, capital values have observed a 1.7 per cent drop.

“A decline of three per cent has been witnessed across Abu Dhabi’s apartment rents. Capital values have declined slightly – two per cent – even though few transactions have taken place. Therefore, it is predicted that over the next 12 months people will be drawn back from Dubai as rent prices and values continue to fall,” he said.

Abu Dhabi’s commercial market has witnessed a decline of 4.2 per cent in Grade A rents and this decline expected to continue as more supply comes to the market.

According to property analysts, the recent move by the federal government to raise the residency visa period for property owners from six months to three years, and the impending new legislation that could allow foreign investors to have 100 per cent ownership in some projects would act as a catalyst to revive the property market.

Global Investment House said in its quarterly review on GCC Real Estate that the passage of a proposed 100 per cent ownership law would increase the base of potential buyers of UAE properties and should contribute to injecting fresh cash and generating activity in the market.

Another positive factor boding well for the UAE real estate sector is the conclusion of the Nakheel’s restructuring plan, the Kuwait-based investment company said.

According to Jesse Downs, Director of Management Consulting at Jones Lang LaSalle, the introduction of a three-year residency visa, although a positive step would represent just one step in a longer process of rebuilding market confidence. “In terms of demand, this could help to unlock second home demand, but this is anticipated to be limited and will not lead to full absorption of the supply overhang,” 
she said.

Oliver Hogg, senior analyst at Landmark Advisory, said the move to issue a three-year renewable visa would provide the market with a reassurance that there is now a satisfactory system in place. “For those who satisfy the criteria, this should be taken as an encouraging sign that the market in Dubai is gradually going up. While, in the short term, this will not address the still significant oversupply that is here in the market, in the long term this decision will help create some of the much needed demand to absorb the oversupply in the residential market,” he said.

Analysts at Jones Lang Lasalle also believe that oversupply would continue to impact residential, office, and retail space markets in Dubai in 2011.

In 2011, an addition of a 25,000 new units would boost Dubai’s total residential stock to around 335,000. Apartments will constitute of 79 per cent of total residential stock by the end of 2011. In 2010 36,000 housing units were completed in Dubai, they said.

CB Richard Ellis also forecast in a recent report that Dubai property market would see a mix of positive and negative sentiments in 2011.

“Oversupply will remain a fixture for the foreseeable future in both the office and residential sectors but some of the negativity may be offset by forecasts of a significant economic recovery over the next two years,” it said. According to Asteco report, apartment sale prices also show continuing signs of stability, with prices having eased by one per cent during the first quarter of 2011, with the decline slowing further from the four per cent seen in the last quarter of 2010. — [email protected]

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Lack of new supply boosts demand for Dubai villas
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