The real estate market has slowed as a result of a slump in oil prices and stronger dollar
UAE residential rental property market to slip further this year, Cluttons says
The UAE residential rental market is forecast to drop further this year compared with 2016, as low oil prices continue to weigh on the sector, according to a new report by UK consultancy Cluttons.
Declines vary from one emirate to another, with the steepest drop forecast for Abu Dhabi, where average rents are projected to end the year between 8 to 10 per cent lower than 2016.
In Dubai, rents will end the year 5 to 7 per cent down compared to 2016, while in Sharjah rents on average are likely to end the year about 5 per cent lower.
Rents have declined over the last three years in the wake of increased supply, job cuts and slower economic growth.
“The property markets in the UAE have faced another tough year, but widespread stability and indeed marginal growth in some segments is expected by the end of 2018,” said the report.
In the capital, Cluttons expected capital values to end the year 5 to 7 per cent lower than 2016 as investors remain on the side lines and institutional funds struggle to find good investment opportunities. Lack of substantial new jobs and weak investor sentiment will likely to impede the stabilization of the sales market during this year.
“In the short term, we expect demand for residential property to be supported by expansionary activity in the hydrocarbon and public sectors,” said the report. “While these two crucial elements in Abu Dhabi plc remain weak, requirements for residential property for rent will likely remain subdued, at least over the course of the next six to twelve months.”
Dubai’s recovery is linked to Expo 2020 and the vast government investment program associated with the event, which is expected to fuel demand for property. The government’s diversification programme will also help lift economic growth, which is less reliant on oil price recovery than Abu Dhabi.
“At this stage, the mega event is one of the primary upside risks to our outlook, especially as we expect it to drive up the rate of job creation and tenant demand, but this is not expected for another one to two quarters at least,” the report said.
“However, before the ‘Expo effect’ ripples through the market, we expect that rents will continue moderating during 2017.”
Meanwhile, market sentiment towards the purchase of residential property in Dubai has softened compared with 2016 due to higher buyer and macro-economic uncertainty particularly for first-time investors, according to the property consultancy Core Savills' latest annual survey.
Only 34 per cent of respondents to the survey said Dubai’s property market has exhibited signs of recovery, compared with 50 per cent in last year’s survey.
Eight out of 10 respondents who do not believe in the sector’s recovery expect the market to be oversupplied by 2020.
Dubai's property market slackened from an economic slowdown and, until recently, the appreciation of the US dollar, to which the dirham is pegged, made it expensive for some investors to buy real estate in the emirate.
Core Savills said there is a discrepancy between sentiment and reality, given that there is a 40 to 50 per cent lag in the past five to six years between the number of announced and delivered units. About 15,000 to 18,000 units are delivered on average every year, boosting existing stock by 3 per cent to 4 per cent.
The survey also showed 20 per cent of potential buyers below the Dh1 million market attribute their hesitancy to lack of market knowledge.