UAE Real Estate Market Report: Dubai, Abu Dhabi hold their ground in Q1 2017

The first three months of the year have been a period of overall stability for the UAE real estate market. Both Dubai and Abu Dhabi managed to conduct a balancing act in the outgoing quarter. Each of the emirate made up marginal slides in one segment with slight improvements in the other. There was a slight drop in apartment sale prices in Dubai at the end of Q1 ‘17 when seen against the price level at the end of December 2016. Average apartment price was down 4% to AED 2.12 million in Dubai. However, the adjustment was balanced out by the stability – and in some cases improvement – in the rental segment of the apartment market.

On the other hand, the apartment sale market performed better than the rental market in Abu Dhabi. While average apartment rent dropped 2% in Q1 against the December 2016 average, average sale price of apartments remained the same as that recorded at the end of the previous year.

Dubai

Although a trickling supply of housing stock in recent months pushed the rental rates down in the emirate – elaborated upon in our February round up of the market – the rental market appears to have made up some lost ground at the end of Q1 2017. February saw a month-on-month rental drop of up to 9% in certain bed categories. However, Bayut noticed worthwhile increases in rental values in some parts of the emirate. For example, average rent for studio units rose by 9% in Bur Dubai, by 8% in Al Barsha and by 7% in The Greens. International City, Business Bay JBR, Al Quoz, The Views and Dubai Marina were other localities where rents rose in Q1.

This means that despite the market still being in a corrective phase, bargains are still to be found and profits are still possible with the right stock.

Overall, studio apartment rent averaged AED 53,000 in Q1’17, with the average rental return on investment (ROI) amounting to 8%. This is a pretty impressive ROI considering the market is still adjusting to pressures like newer stock of units and international economic deceleration. The average rent for 1-bed apartments was AED 86,000 in Q1, the same as the value at the end of 2016. Annual rental ROI for the category remained 6.7%.

Two-bed units fetched an average rent of AED 135,000 in the period under discussion, exhibiting a 0.7% improvement in value. The average ROI for the category in Q1 was 5.4%. Rent for 3-bed units in the emirate averaged AED 187,000, with a ROI of 5.3%. Following an increase of 1.6%. The average rent for 4+ bed category rose to AED 319,000 in Q1. However, a simultaneous capital value rise of 7%  meant that average ROI was recorded at a mere 4% in Q1 ’17.

Abu Dhabi

While its glitzy neighbour displayed strength of rents, Abu Dhabi kept content with show of strength in the sale market. Although overall average price of apartments adjusted downwards by 1%, individual categories posted improvement prices during the outgoing quarter. Studio apartments, the apartment category that remains most in demand, saw the average sale price increasing by 3%, the value maxing out at AED 742,000. However, average studio unit rent took a hit of 6% during the period and ROI remained at 6%. Rent for one-bed units in the emirate also came down by 2%, returning a yield of 6.6%. However, the average sale price was close to AED 1.2 milion, similar to the value recorded at the end of December.

Two-bed apartments in the emirate saw a downward price adjustment of 1%, but the average rent dropped by 3.2%, culminating in an average ROI of 6.6%. The sale price of 3-bed units was AED 2.6 million, the same as the average at the end of December 2016. However, average rent declined by 5%. Regardless, the average ROI remained an attractive 6%. In the 4+ bed category, there was a decline in both the average rent and the sale price. Rent dropped by 4%, but the average price dropped by 8% in Q1 in comparison with December 2016 average. The category returned an average ROI of 5%.

Our Take

As political and financial uncertainties continue to cast a shadow on the global economy, real estate investors are in constant search of a safe haven. And despite pronounced security-related turbulences and liquidity crunch in the region, Dubai and Abu Dhabi have proven beacons of assurance for worried realty players. Security of investments, rigorously implemented laws and attractive ROIs have made the two emirates worthy recipients of investors’ attention.

Dubai continues to benefit from a gradually rising population which is keeping the demand for mid-market housing going. Its unique edge of being the host of upcoming Expo 2020 continues to brew hope in the market. Also developers remain relentless in their endeavours to launch projects across the city. Abu Dhabi appears to be in a phase of correction that is helping rents rationalise and prices stabilize. Pressures might remain on both the sale and rental markets in the two emirates in the next few quarters. But the activity in both cities will go up once mega projects related to expo begin taking shape. In the meantime, both emirates continue to reward realty stakeholders who look long and hard and at the right options.