Apartment lease rates in Dubai, UAE,decreased 2.1 per cent in the first quarter (Q1) of 2016, while sale prices declined by 1.9 per cent, according to a report released by Phidar Advisory, an advisory firm specializing in real estate.

“There has been a flurry of positive headlines over the past month with limited evidentiary support or analysis,” said Jesse Downs, managing director of Phidar Advisory. “Research indicates unsubstantiated optimism can have a destructive impact on a market,” she added.

The report reviews research demonstrating that positive signals fuel booms and busts. Most importantly, the degree of downward adjustment increases with the level of optimism before the crises. Unsubstantiated optimism is associated with worse crises. Informational frictions – like low transparency and inaccurate data – facilitate the process by disconnecting asset prices from area fundamentals because investors cannot accurately assess the market.

“The available real time indicators do not support the story of a short term turnaround” said Downs. “And ignoring the bad news now can create a crisis later,” she added.

The report notes that, over the past 18 months, the sale price decline appears driven by the strong US dollar, but, now, the trend will be carried forward by the lagged impact of low oil prices.

Previous Phidar analysis showed the two-three-year lag of low oil prices on Dubai’s economy. Cited as initial supporting evidence for this trend: the Emirates NBD Dubai Economy Tracker in February registered the first contraction since the series started in 2010. Additionally, the IMF recently revised the UAE’s 2016 GDP projection from 3.1 per cent to 2.6 per cent.

Phidar’s Dubai Real Estate International Demand Index (REIDI) dropped 2.2 per cent in Q1-16, compared to 2015. This indicates an even lower propensity for investment in Dubai real estate.

In Q1-16, apartment lease rates decreased 2.1 per cent, while sale prices decreased 1.9 per cent, keeping yields relatively steady at 7.7 per cent (gross) and 6.6 per cent (net), a nominal decrease of 1 basis point. Lease rates for single family homes, also referred to as villas, decreased 4.7 per cent and sale prices increased 1.6 per cent, which reduced yields to 4.8 per cent (gross) and 4.6 per cent (net), a loss of 32 basis points in the first quarter of 2016.

“The strong USD, low oil price, rising cost of debt all reduce liquidity and consumption” said Downs. “This has filtered through the economy and is now impacting job growth, occupier demand, and rents” she added.

“Transparency is not simply a theoretical concept, it is the cornerstone for building a stronger market,” said Downs.

“Promoting transparency and objectivity is promoting the market for Dubai real estate,” she concluded. – TradeArabia News Service