The residential prices in Dubai during the first six weeks of the year have decreased compared to the previous quarter as international demand dwindles, according to a report.

The Phidar Advisory’s first quarter mid-quarter Dubai residential research note said that apartment lease rates remained stable with a nominal decrease of 0.5 per cent, while sales prices decreased 3.7 per cent, pushing yields up to seven per cent.

The lease rates for single family homes, also referred to as villas, decreased 2.4 per cent and sale prices decreased three per cent, which pushed yields up marginally, it said.

Jesse Downs, managing director of Phidar Advisory, said: “As long as general price deflation is averted, rent stability or softening can help control labor costs, which can facilitate business and economic growth.

“Ideally, this is paired with countercyclical monetary and fiscal policies to the real estate industry that facilitate economic diversification.”

Meanwhile, Phidar launched the Dubai Real Estate International Demand Index (Dreidi) to assess the relative propensity for international real estate investment in Dubai. It 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 exogenous variables in foreign markets substantively impact Dubai real estate investment trends. From quantitative easing policies that erode foreign currencies to tax code amendments that stem capital outflows, events in foreign markets can amplify real estate demand and price volatility in Dubai, which, in turn, increases Dubai’s market risk, said the report.

This iteration factors in the currency exchanges rates and real GDP growth rates from 22 countries that form the vast majority of Dubai real estate investment, it said.

“Our Dreidi index indicates that the propensity for investing in Dubai real estate is at a five year low point,” said Downs.

“This is a first draft and we are developing more complex iterations integrating additional variables that influence capital flows,” she said.  

Phidar has also downgraded rent projections to softening while sale price declines will continue to outpace rent declines, allowing yields to gradually expand through this year.  

“Now that sentiment has cooled, there is an affordability adjustment underway in the rental market,” said Downs.

“Additionally, there are concerns that the strong dollar is tempering growth and job creation particularly in the real estate, hospitality and retail industries,” she added. - TradeArabia News Service