Dubai residential property: Interest rates, credit constraints & rent declines belie recent stability
Source: Phidar Advisory , Author: Posted by BI-ME staff
Posted: Mon April 10, 2017 1:22 pm

UAE. Today, Phidar Advisory released its Dubai residential research note with March data. The report shows nominal to moderate quarterly price and rent declines and projects further softening.

“The market is undergoing a false start now,” said Jesse Downs, Managing Director of Phidar Advisory. “Apartment sale prices declined only nominally this quarter and volumes increased, which could be mistaken for an impending recovery, but the market fundamentals still do not support this in the short-term,” she added.

In the first quarter of 2017, quarterly apartment lease rates declined 2.5%, while sale prices declined 0.5%, pushing gross yields down to 7.55%, a three-month loss of 15 basis points, according to a three-month moving average of the Phidar House Price Index: Dubai 9/5. Lease rates for Single Family Homes (SFH), also referred to as villas, decreased 2.9% and sale prices declined 5.4%, which pushed yields up to 4.75%, a quarterly gain of 10 basis points, using a three-month moving average.

“After eroding through the end of last year, villa yields have started to expand and now apartments need to go through a similar correction,” said Ms. Downs. “Rents continue to decline due to weak demand and changes in housing budgets, which will have the starkest impact on high income housing.” she added.

In Q1-17, Phidar’s Dubai Real Estate Investment Demand Index REIDI decreased by 20.4% compared to 2016, driven by exchange rate fluctuations and downward revisions in GDP forecasts. In the first quarter, the US dollar – and therefore UAE Dirham – strengthened against 9 of the 14 floating currencies included in the REIDI, compared to Q4-16.

“It is unsustainable to have yield erosion amid rising debt cost and liquidity constraints,” she said. “As interest rates creep up and banks likely impose tighter lending standards, residential volume and prices should decrease,” concluded Ms. Downs.

Phidar is now publishing its main House Price Indices and Dubai REIDI at www.phidaradvisory.com complimentary for users.


About Phidar Advisory

Phidar AdvisoryLLC is an advisory firm specializing in real estate in the UAE. Jesse Downs is the Managing Director and co-founder, joined by 6 founding partners, a mix of GCC family offices and senior international real estate and finance professionals. Prior to establishing Phidar Advisory, Jesse was a Director at Jones Lang LaSalle and prior to that she was the Director and Head of Landmark Advisory.

For more information about Phidar Advisory, please visit www.phidaradvisory.com.

 

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