The down cycle for the residential real estate sector in Dubai is ending, according to JLL’s Dubai Real Estate Market Overview for Q2 2017—but the future of the market depends on whether there will be suitable demand.
The firm estimates that the residential sector currently has approximately 78,000 units under construction and scheduled for delivery by 2020. If population growth in Dubai reaches the estimated number of 3.5% year-on-year, developers run the risk of too much supply and not enough demand—plenty of homes, but not enough residents.
However, JLL estimates that developers will actually only deliver about 40% of the estimated 78,000 units, which will help to combat this issue somewhat. Players in the real estate industry should still keep the threat of over-supply and increased vacancy levels in mind in order to avoid issues post production and delivery. Potential customers and tenants from Russia, China, and the UK—traditional source markets—are facing more expensive prices for Dubai property, partially as a strong US dollar is giving Americans greater buying power within the UAE. There has been a notable decrease in purchasing activities from consumers in the UK in particular, likely as a result of concerns regarding Brexit. Weaker oil prices are also impacting residential property prices for these customers. As a result, the market may see an influx in the amount of American consumers interested in purchasing or renting property in Dubai.
Over the past twelve months, villas in Dubai declined in price by 0.8%, and apartments by 0.3%, says JLL. These lowered prices have encouraged a large number of first-time buyers to enter the market and have resulted in rapidly increased sales rates. A large number of lower-priced properties that were purchased in the first quarter of 2017 are now being sold in the secondary market. However, over the next twelve months, the firm predicts an increase in prices as a result of increased underlying sales activities, relieving the residential real estate sector in Dubai of its buyers’ market status.
Roughly 5,400 completed residential properties were sold in Dubai in the first five months of 2017, an increase from the 4,500 sold in the first five months of 2016. Should developer supply meet consumer demand, the near future of the market will be very promising.
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