Residential prices in Dubai, UAE continued to decline in the first six weeks of the second quarter (Q2) of the year compared to the first quarter, a report said.

Apartment lease rates decreased a nominal 2.4 per cent, while sale prices decreased 1.5 per cent, marginally tightening yields, added the Q2 mid-quarter Dubai residential research note released by Phidar Advisory, an advisory firm specializing in real estate in the UAE.

Lease rates for single family homes, also referred to as villas, decreased 0.6 per cent and sale prices decreased 2.9 per cent, which pushed up yields slightly.

In the first five months of 2015, apartment transaction volumes were down a modest 1.5 per cent, compared to the same period in 2014. SFH volumes contracted almost 25 per cent, over the same period. This is based on initial transaction data from the Dubai Land Department, which is subject to revision.

The report references income specific supply-demand imbalances. The most vulnerable segment is housing supply with current annual rents of Dh100,000 ($27,200) to Dh160,000 ($43,500) per annum, which could be oversupplied by up to 40 per cent in five years.

“The ongoing erosion of sale prices is a healthy correction” said Jesse Downs, managing director of Phidar Advisory.

“The more significant concern is the scale and nature of the upcoming launched and announced projects.

“If we consider only under construction and launched projects, the majority of the development pipeline is justified due to sufficient total demand. However, overbuilding in the mid-high income segment likely will increase competition and lead to supply reordering,” she added.

The potential for total market disequilibrium increases significantly when adding announced projects into the supply pipeline. Total market vacancy could reach 11 per cent by 2020. Factor in a healthy frictional vacancy and the total vacancy rate converts to a 7 per cent oversupply.

“There is an opportunity to reposition upcoming products to meet the city’s anticipated housing needs,” Downs said.

“If current announcements convert into launches, the probability for instability by 2020 will increase significantly,” she concluded. – TradeArabia News Service