27/04/2015 16:51 AST
The strong US dollar continued to hit Dubai property prices during the first quarter (Q1) of the year, but apartment transaction volumes remain resilient, an industry expert said, adding that the market downturn is attracting selective investment.
Apartment lease rates decrease a nominal -0.3 per cent, while sale prices decreased 3.9 per cent, pushing yields up to 7.2 per cent, added Jesse Downs, managing director of UAE real estate specialist Phidar Advisory, highlighting the company’s Q1 end-quarter Dubai residential research note released today (April 27).
Lease rates for villas decreased 2.4 per cent and sale prices decreased three per cent, which pushed yields up to 5.7 per cent.
In Q1-2015, apartment transaction volumes were up 0.6 per cent compared to the same period in 2014, but villa transactions were down 57 per cent compared to Q1-2014.
Transaction volumes for the communities tracked by Phidar’s House Price Index were down by half in Q1-2015 compared to Q1-2014, implying a shift to newer, less established projects and communities.
Phidar’s Dubai Real Estate International Demand Index (Reidi) fell significantly in the first quarter, driven primarily by currency fluctuations, indicating a very low propensity for international real estate investment into Dubai.
In Q1-2015, the midpoint exchange rates for all currencies included in the Reidi are down against the dollar, both quarter-on-quarter and year-on-year, except the Pakistani Rupee and Hong Kong Dollar. This is not a measure of actual capital flows, but a real time indicator intended to assess the propensity for attracting capital inflows into Dubai real estate, the report said.
The report also explores affordable housing trends and maps out some of the challenges to address, primarily structuring and project location.
“The off-plan sales model for Strata units is not a suitable capital raising strategy for affordable housing development,” said Downs.
“Fragmented ownership will lead to disequilibrium, volatility and market risk,” she added.
Since the market trough in 2011, standard quality apartments price have increased 75 per cent. Phidar uses a four tiered scale to classify properties by quality and Standard is the most basic classification.
The long term average price for Standard properties is above the affordability threshold, Dh810-910 ($220-247) per sq ft. Although prices dip below the threshold during downturns, on average, these communities are not affordable for households with a total monthly income less than Dh15,000 ($4,080), the demographic with the greatest housing undersupply.
The most affordable communities included in the House Price Index, Discovery Gardens and International City, are associated with particularly high volatility, as measure by the coefficient variation.
“Households in these communities are particularly sensitive to inflationary pressures. We will need to adopt new models for development, capital raising and operations to meet this challenge, ideally one that involves both the public and private sectors,” Downs concluded.
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