Dubai becoming ‘two-tier’ property market, while rents continue rise

Rapid house price growth slowed in the second quarter but continued to rise in cheaper locations and apartment rents were up 4%, according to Asteco.

Rents in Dubai continued to increase during the second quarter of 2014. Sarah Dea / The National

Dubai’s rapid house price growth has slowed for a second quarter in a row as buyers struggle to pay the high prices demanded by sellers.

According to new figures from the Dubai estate agent Asteco, average achieved apartment prices in Dubai increased by 6 per cent between April and June, while villa sales prices grew by just 3 per cent.

Asteco agents reported that Dubai is becoming a “two-tier” market with many more established locations experiencing little price growth as buyers struggle to afford high asking prices while prices continue to grow in cheaper locations.

Average apartment sales prices in established areas such as DIFC and The Greens showed no average increase whatsoever during the three-month period to remain at between Dh1,950 and Dh2,150 per square foot at DIFC and between Dh1,200 and Dh1,600 per sq ft at The Greens.

Meanwhile, prices on Palm Jumeirah were up 5 per cent to stand at between Dh1,300 and Dh2,900 and in Jumeirah Beach Residence they rose 2 per cent to between Dh1,100 and Dh1,500 per sq ft as many buyers remained priced out.

However, some of the highest price rises during the quarter were recorded in less developed areas of the city where prices remained low in comparison. These included Jumeirah Village, where average prices grew 9 per cent over the quarter to reach between Dh800 and Dh1,100 per sq ft as well as Dubai Sports City and Dubai Silicon Oasis.

The data comes hot on the heels of Asteco’s first quarter of the year. Asteco reported that average apartment prices rose 3 per cent, while villa prices were up by 6 per cent.

The more moderate house price rises follow months of rocketing Dubai house prices as the emirate rebounded from the global financial crisis to again approach 2008 highs.

Masood Al Awar, the chief executive of the UAE property investor Tasweek, said: “For the second quarter of the year the markets have been gradually cooling down and sustaining the gains made shortly after the announcement of Dubai’s Expo 2020 win.

"The market has more or less reached a level of stability driven by the key factors of affordable housing and rents that are fostering parallel growth in small and medium businesses."

Asteco said that after rampant house price growth in 2013, apartment prices in the areas it surveys stood on average 38.8 per cent higher than they had a year ago.

“We recorded positive growth rates of around 10 per cent in Q2 for these [less established] areas, but at the same time there was a decline in interest in the previously popular affordable communities of Discovery Gardens and International City, which only registered minimal growth, indicating that they are now topping out price-wise and any further growth will take them out of the affordable bracket,” said the Asteco managing director John Stevens.

He added that the company had noticed a reduction in transaction levels as sellers who raised their prices following the Expo 2020 announcement in November remain intent on maintaining their position.

Apartment rents in Dubai also rose by an average of 4 per cent between April and June as tenants looked to rent controls to curb high demands from landlords.

Asteco said that the Dubai rental market was dominated largely by demand from new tenants moving to Dubai from abroad as tenants already in situ chose to sit tight and pay the rent increases prescribed by the Dubai Government rather than risking a move into the open market.

Apartment rents on the Sheikh Zayed Road and in Deira showed no increases at all over the quarter Asteco reported, standing at between Dh135,000 and Dh170,000 a year on the Sheikh Zayed Road for a two-bedroom apartment and between Dh80,000 and Dh110,000 for the same in Deira.

In established areas such as Dubai Marina and Palm Jumeirah there were rent increases of 6 per cent over the three-month period to stand at between Dh140,000 and Dh200,000 for a two-bedroom flat in Dubai Marina and between Dh150,000 and Dh220,000 on Palm Jumeirah.

In only one area, Jumeirah Beach Residence, was there a double-digit increase over the quarter according to Asteco, where rents rose 10 per cent between April and June to stand at between Dh120,000 and Dh200,000 for a two-bedroom apartment, boosted by the release of the Al Bateen Residences.

“With rents increasing steadily since 2013, many existing tenants have elected to remain where they are and absorb the rent increase, as indicated by the Rera rental index, rather than start from scratch and incur the cost of moving, agent commissions etc,” said Mr Stevens.

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