Capital values of the real estate market across all segments in both Dubai and Abu Dhabi continued to decline during the fourth quarter of 2010, said a report.

In Dubai’s residential market, more supply – adding to the already large oversupply – will continue to put downward pressure on capital values, said the Q4 2010 Dubai and Abu Dhabi Market Report released by Landmark Advisory, a leading real estate consultancy company.

“This issue will be exacerbated due to the fact that 2010 saw significant postponements in delivery with roughly half of the 50,000 or so units we had expected to be handed over, delayed,” said Saeed Hashmi, head of valuation and advisory at Landmark Advisory, a division of Landmark Properties.

The result was that over the quarter, capital values declined by 5.8 per cent and 1.4 per cent for apartments and villas respectively, with rents declining by 7.5 per cent and 3.4 per cent, he added.

However, Hashmi affirmed that while capital values did decline, there was actually a significant spike in apartment leasing volumes across the quarter due to a combination of relocation demand from other Emirates in the UAE, coupled with people within Dubai looking to take advantage of declining rents.

In Dubai’s office market transactional activity remained slow, away from a select few high-profile Grade A assets in prime locations caused by significant barriers which continue to prevent any sustained increase in transactional activity, the report said.

“Capital value declines due to oversupply are stymieing the amount of potential purchasers into the market and while it now makes sense for companies to consider owner-occupation, liquidity constraints are preventing this being witnessed on a large scale,” Hashmi said.

In Abu Dhabi, it is impractical to try and analyse the residential market in isolation. As such, while the market is in fact currently undersupplied, it continues to behave as if it is oversupplied, he added.

“Newly created demand in Abu Dhabi is contingent on other markets, most notably Dubai’s. Thus, capital values and rents are falling,” Hashmi explicated.

Transactions levels in the capital remain low, the report said.

However, the fourth quarter of 2010 was ‘a transitional quarter’ for Abu Dhabi, as asking prices finally started to reflect reality, down in some developments up to 17 per cent compared to the third quarter.

Rental declines were also witnessed, with a 6 per cent decline – resulting in a cumulative fall of 31 per cent over the year. As seen in previous quarters, the steepest declines occurred off-island and in low quality areas, the report said.

Office sales in the capital remained almost non-existent, said Hashmi, describing this segment of the market as “being in hibernation, waiting for deliveries to occur, so that potential purchasers can adequately assess the state of the market before committing to any transactions.”

While capital values and rents continued to fall in the fourth quarter of 2010, sentiment overall has improved and there are signs of investors reconsidering the UAE, in particular Dubai, as a place to invest again, Hashmi said.

“We expect in 2011 that Dubai’s residential market will bottom out in certain areas and renewed interest to ensue,” he concluded. – TradeArabia News Service