Dubai residential prices dropped in the first half (H1) of the year, a report said, projecting further declines.

“Some claim this is a supply story, but supply has expanded slowly over the past thirty months,” said Jesse Downs, managing director of Phidar Advisory, an advisory firm specialising in real estate in the UAE.

“The current declines reflect soft demand,” she added.

In Q2 2016, apartment lease rates declined 2.2 per cent, while sale prices declined 3.7 per cent, pushing gross yields up to 7.9 per cent, a three-month gain of 12 basis points, according to Phidar House Price Index: Dubai 9/5.

Lease rates for Single Family Homes (SFH), also referred to as villas, decreased 3.6 per cent and sale prices declined 1.1 per cent, which pushed yields down to 4.7 per cent, a loss of 12 basis point in the first half of the current quarter.

“The compression of villa yields is unsustainable and should slowly reverse in the coming year” said Downs. “Sale prices and rent declines for both villas and apartments will likely continue for the next 12 months, possibly up to 18 months.”

In 2015, foreign nationals purchased over 80 per cent of real estate investment in Dubai. From that portion, 82 per cent was purchased from foreign nationals outside of the GCC, most of which are from countries with floating exchange rates.

In Q2, Phidar’s Dubai Real Estate Investment Demand Index (Reidi) remained flat, on the back of a strong, but stable, US dollar.

Since mid-2014 currency fluctuations created inflationary shocks for foreign buyers of Dubai real estate. Three currencies have a significant impact on Dubai property prices: Indian rupee, British pound and Pakistani rupee. All three have strongly trended downward since 2008.

The United Kingdom’s referendum to leave the European Union, also called Brexit, on June 23, caused the GBP to lose 11-12 per cent. Since Brexit occurred in the last 10 days of Q2, the impact will be most noticeable in the Q3 Reidi results.  

“The strong US dollar is one of the biggest barriers to a Dubai real estate recovery now. Unfortunately, a strong dollar also is usually associated with a low oil price, signifying a double hit to the market,” concluded Downs. – TradeArabia News Service