As the local economy continues to adjust to softening global conditions, overall residential values and rents in Dubai, Sharjah and Abu Dhabi are set for a further decline for the remainder of 2016, according to leading international real estate consultancy Cluttons.
 
Reflecting the sentiment in the UAE office market, Cluttons’ 2016 UAE Property Report shows that redundancies in the oil and gas, finance and banking sectors have negatively impacted demand in the residential property market across the country, with capital value and rental declines likely to be witnessed in Abu Dhabi, Dubai and Sharjah over the remainder of the year.
 
Faisal Durrani, the head of research at Cluttons, said: "A number of global economic factors are contributing to the current pressure on the UAE’s residential market, including low oil prices, Brexit, the EU’s sovereign debt issues and economic uncertainty in China."

"We are still some way away from the bottom of the market however, with Abu Dhabi in particular heavily impacted by the performance of oil and gas sector, with further corrections still coming through strongly, particularly at the top of the residential market," he noted.
 
"In Dubai, we believe that the residential market will start to stabilise by the end of 2017, largely due to the ‘Expo 2020 effect’ and this in turn will influence the demand for real estate in Sharjah, but until then, further slight softening is expected in Dubai," stated Durrani.

"Our forecasts however remain unchanged and on track, with Dubai likely to see residential values end the year down by between -5 per cent for apartments and -7 per cent for villas.”
 
On Abu Dhabi, Cluttons said in Q2 2016, apartment values in the capital slipped by 0.6 per cent, the first quarterly decline in three and a half years, leaving average prices 0.5 per cent down between January and June. Average prices continue to hover around the Dh1,300 per sq ft mark and will end the year about three to four per cent lower than at the end of 2015.
 
Villa values, which began to recede at the end of 2015, posted sharper falls, with average prices dipping by 4.9 per cent in the six months to the end of June, pushing average villa prices just below Dh1,200 per sq ft. By the end of the year, villa values will likely be down by about 10 per cent on 2015.
 
Edward Carnegy, the head of Cluttons Abu Dhabi, said: "The oil and gas sector provides a significant stream of demand in the residential market and as expected, the flow of buyers from this usually active segment of house hunters is still fairly weak."

"Buyers continue to remain cautious about committing to purchases, with the predicted ‘wait and see’ approach now firmly bedding in to the market, as potential buyers wait on the side lines for when they perceive the market to be ripe for a purchase," he stated.
 
In the rental market, Cluttons said there has been a remarkably high level of tolerance to the slowing economic conditions over the past six to nine months, with growth, albeit marginal, continuing to filter through to the end of Q1.
 
"With the rates of job creation slowing and anecdotal evidence of redundancies mounting in some key sectors, the short term outlook for the rental market remains weak," observed Carnegy.

"While locations perceived to be more affordable are likely to continue attracting the lion’s share of demand, the market as a whole is still expected to weaken over the rest of 2016," he stated.

"We expect to see villa values end the year up to 20 per cent lower on 2015 in the city’s residential investment zones, while apartment rents are likely to register more moderate falls of three to four per cent," he added.

Cluttons’ report shows that during Q2, values continued to soften across almost all residential submarkets in the city.

Overall, residential capital values decreased by a further 2.4 per cent, taking the annualised rate of change to -5.2 per cent, in line with previous expectations made by the real estate consultancy.
 
Richard Paul, head of residential valuations Dubai said: "This has made Palm Jumeirah and Discovery Gardens the weakest performing submarkets so far this year, while highlighting that the current market correction is taking place across the board as values continue to gradually drift towards a new floor."
 
"That said, there are some locations in the city’s residential landscape where values are holding firm," he stated.

"Prominent villa submarkets in this category include The Lakes, The Springs and Arabian Ranches, while on the apartment front, Downtown Dubai (excluding the Burj Khalifa) and International City have all remained resilient, hinting perhaps at the importance location, quality and value for money play in the perception of fair market value," he noted.
 
According to Cluttons, while rents during the first quarter showcased the biggest quarterly decline since 2011, the rate of falls recorded continued to accelerate in Q2 with average falls of 4 per cent, taking the annualised rate of change to -6.6 per cent.
 
"The gradual softening in capital and rental values is expected to persist and barring any major global economic shocks, this decline is expected to be slight, rather than substantial. Dubai’s diversified economy is likely to help curtail volatility in values and rents, with the rapidly approaching Expo 2020 expected to be a significant catalyst for residential demand," explained Paul.
 
On Sharjah, Cluttons said its latest research, after registering a 5.7 per cent fall in average rents during the first quarter, the residential rents in the emirate slipped by a further 2.5 per cent in Q2 2016.

The latest change means that rents are now 8.5 per cent lower than Q3 2016, the expert added.
 
Suzanne Eveleigh, the head of Cluttons Sharjah said: "With job creation rates slowing and residential rental values ebbing in Dubai, we have observed cases of reverse migration where tenants who had previously been priced out of Dubai due to high rents, are once again relocating to the emirate."

"This, coupled with rental declines in Dubai has meant that in order to stay competitive, landlords in Sharjah have been forced to adjust rents downwards to match tenants’ expectations and minimise void periods," she noted.
 
“Despite landlord’s efforts, with rents already down by just over 8 per cent so far this year, we have already exceeded our initial 2016 forecast of a 5 per cent decline on average," stated Eveleigh.

"We now expect rents to end the year 8 to 10 per cent down on 2015 as the market rebalances and we work our way through the bottom of the current market cycle," she added.-TradeArabia News Service