The residential prices across Dubai, UAE, dropped in the fourth quarter of 2015 compared to the previous quarter, and declined through the past year, according to a new report by Phidar Advisory, a specialist on the UAE real estate sector.

Compared to 2014, Phidar’s Dubai Real Estate International Demand Index (Reidi) dropped 83 per cent by the end of 2015, primarily driven by exchange rate fluctuations.

Phidar’s Dubai Reidi 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. It is a composite index of GDP and foreign currency z-scores for 22 countries.

The report also addresses the recent controversy around supply projections.

“Recent comments from the market highlight the importance of understanding the methodology behind the data,” said Jesse Downs, the managing director of Phidar Advisory.

“This is a positive development, stakeholders should be asking these questions,” she added.

According to Phidar, 14,300 homes were completed in master planned communities and an estimated total of 18,600 new homes were completed across the city last year.  

Based only on supply pipeline estimates, the five-year supply pipeline grows at 3.6 per cent compound annual growth rate (CAGR) whereas the demand grows at a robust 6.5 per cent CAGR, largely due to jobs created by the development and running of the Expo 2020 project, which should start to ramp up in 2018, stated the report.

However, when announced and launched projects are included the 5-year supply CAGR jumps to 5.7 per cent-7.0 per cent, it added.

“We monitor construction sites across the city to assess the supply pipeline, but also include a modest growth rate for areas outside of investment zones and master planned projects,” remarked Downs. “This creates a more realistic estimate of total supply growth in Dubai,” she added.

In 2015, apartment lease rates decreased a nominal -1.9 per cent, while sale prices decreased -12.7 per cent, pushing gross yields up to 7.7 per cent, an annual gain of 70 basis points.

Lease rates for single family homes, also referred to as villas, decreased 5.5 per cent and sale prices decreased -14.8 per cent, which pushed yields up to 5.1 per cent, a gain of 50 basis point in 2015.

Now, in addition to gross yields, Phidar is publishing net yields associated with the projects included in the House Price Index: Dubai 9/5. Average net yields are 6.7 per cent for apartments and 5.1 per cent for single family homes.

“Global economic dynamics are tightening liquidity, increasing capital costs, and slowing growth in the region. These trends could continue for two years,” said Downs.

“Improving transparency can help bring down market risk, which is critical in the current environment,” she added.-TradeArabia News Service