Lynnette Abad, Director of Data & Research at Propertyfinder Group, dug into transaction figures to reveal how 2018 compares to last year, and what is to come for the off-plan market.
This year has so far seen transactions levels lower than last year and price declines continuing both in sales and rentals across the majority of areas in Dubai, some down 10% year-on-year. Certain trends have continued from last year, with developers still offering attractive payment plans, including rent-to-own schemes, which started gaining traction in H2 2017.
The rental market
While tenants are still in the driving seat on negotiating number of cheques, we saw a new trend this year where tenants were able to negotiate a much lower rent in exchange for a one cheque payment. With this kind of attractive leverage, the trend is headed back toward a single lump sum annual payment.
More than 55% of rental transactions in H1 2018 were with one cheque, whereas during the same time period last year, half of rental transactions were with four cheques, which was the common trend last year. We also continue to see tenants negotiating a free month’s rents and, in some cases, extra incentives such as gift vouchers and free utilities as part of the signing process.
The sale market
One of the most prominent changes we have seen this year is a 30% decline in off-plan sales volumes from H1 2017 compared to H1 2018.
Meanwhile, the secondary market has remained steady when comparing H1 of 2017 with 2018. Transactions have hovered around 6,000 during the first half of both years.
Off-plan: apartment transactions
A total of 7,906 off-plan apartment units have sold so far in 2018. The top three areas, based on transaction volume, are Mohammed Bin Rashid City, Business Bay, and Jumeirah Village Circle.
Of the transactions this year, 14% were for units that cost less than AED 500K, while 41% were transacted between AED 500K and AED 1 million.
Demand for smaller apartments is high, with 42% for units that are less than 500 square feet. The majority of sales continue to be for studios and one bedrooms, accounting for 38% and 35% of transactions, respectively.
Off-plan: villa/townhouse transactions
There has been a total of 755 off-plan villa/townhouse transactions so far this year, a 70% decline in off-plan villa/townhouse sales from the same period last year. The top three areas based on transaction volume are Akoya Oxygen, Townsquare, and Mohammed Bin Rashid City.
Prices for off-plan villa/townhouses continue to be attractive, with prices starting as low as AED 900K for a two-bedroom townhouse. In fact, 41% of the off-plan villa/townhouse transactions during H1 2018 were under AED 2M.
The size of the units is still attractive with 47% of the transactions between 2,000 to 2,500 square feet and 43% were greater than 2,500 square feet. In addition, 45% of the transactions were for four bedrooms and 41% for three bedrooms.
Secondary market: apartment transactions
So far, 4,472 ready apartments have sold this year, with the top three most popular areas remaining from last year: Dubai Marina, Sports City, and International City.
Units priced between AED 500K to AED 1M continue to be the most common deals covering 31% of the transactions, while 22% of transactions were for units under AED 500K.
Unlike off-plan transactions, units between 500 to 1,000 square feet remained the most sought after, covering 40% of transactions, while 21% were for units under 500 square feet. While one bedrooms continued to be the favourite with 42% of transactions, studios took the second spot with 28% of transactions.
Secondary market: villa/townhouse transactions
There has been a total of 1.362 secondary villa/townhouse transactions so far this year, and the most popular areas are Emirates Living, International City, and Arabian Ranches.
The majority of secondary units on the market today are still on the larger side with 58% of the transactions for units over 2,500 square feet. Three bedrooms covered 40% of transactions, while 37% were for four bedroom homes.
Consistent with the trend which started last year, sale prices are still considered affordable within the secondary villa/townhouse segment, with 51% of transactions below AED 2M, while 32% were over AED 3M.
Handover of new supply
A little more than 10,400 units have been handed over in H1 2018. The largest releases have been in Dubailand, with over 2,200 units; Jumeirah Village Circle, with over 1300 units; and Dubai Silicon Oasis, with over 900 units.
By year-end, 8,000 more units are scheduled to be handed over with the majority of the units located in the Dubailand area.
Construction and new project launches don’t appear to be slowing down either. In Q1 2018, 42,000 units were announced in new launches, 50% higher compared to last year where the number of launches in Q1 2017 was 28,000 units.
What to expect for the rest of 2018
Transactions will most likely continue to trend at the current pace, slower than last year for off-plan, and a steady, consistent pace for the secondary market. While prices are still declining, many consumers are still on the fence whether to buy now or wait, and the large down payment needed to purchase a property continues to be a hurdle for most end-users.
More developers are getting on the rent-to-own bandwagon, which could be a viable option for end-users who lack the down payment to purchase a property. As long as terms are realistic and affordable for the end-user, this trend could revive off-plan sales and help relieve the current pressure on developers caused by unsold ready stock.
Once the new ten-year visa and 100% ownership of foreign companies legislation is formally released in H2 and all details are known, this will certainly have an indirect effect in the real estate industry, as it may bring more white-collar population into the UAE who can afford to purchase property. The new legislation will also likely give expats confidence to invest in property locally due to the assurance they can remain in the country for a longer period of time.
By Lynnette Abad, Director of Data & Research, propertyfinder.ae
