The UAE witnessed a general slowdown in the real estate market across all its emirates during the first half, due to the cumulative effect of falling oil prices and the resulting cuts to government budgets, according to Asteco, the Middle East’s largest full service real estate company.

Dubai experienced a slow first six months, but for different reasons, with developers slowing the pace of project completions and handovers due to the forecasted oversupply of residential properties in the market, which prompted a slight drop of around two and one per cent respectively on rental rates for apartments and villas, said Asteco in its special Cityscape report today (September 6).

The property expert said Dubai sales market was likely to bottom out by the end of 2016. A trend towards affordable development persists with increase in single-unit buyers expected in 2017 it added.

Owing to the falling oil prices and the slashing of government budgets over the last 18 months, there has been a slowdown in Abu Dhabi, where resulting job cuts in the last 6-8 months led to H1 2016 residential rental rate declines of three per cent on average, with high-end units down by four per cent and a subdued sales market, it stated.

"We are seeing two unique pictures emerge for the residential sector in both emirates. What is interesting to note in Dubai is the decision of families to downsize and even send spouses and children home in an effort to save money," remarked John Stevens, the managing director of Asteco.

"We are seeing signs of this in Abu Dhabi with a migration or downsizing mainly from high-end large units, to more affordable developments; which has led to a rise in vacancy rates for larger units and which could prompt an increase in rental rates for smaller units in more desirable buildings," he noted.

Dubai added 2,000 new primarily mid-level and affordable apartments and 200 villas and townhouses in H1, with affordable developments such as Siraj Tower at Arjan and 400 units in Dubai Silicon Oasis; the mid-range Ajmal Sarah Tower and Dubai Sports City, Canal Residence West; and, at the top end, Palm Jumeirah’s Osaimi Apartments.

The Asteco report highlighted substantial interest in Jumeirah Village from both end users and investors with buyers recognising the potential of the community from a locational point of view in comparison to newer projects launched south of Mohamed Bin Zayed Road.

According to Asteco, the apartment prices in most communities continued to be under pressure with an overall price reduction of three per cent during the first half, however prices are still 64 per cent higher than 2011.

For the villa market, rates were broadly stable over the last six months with an average increase of 0.3 per cent, with a trend towards smaller two to four-bedroom homes in communities such as Arabian Ranches, The Springs and Mudon, still prevalent, it stated.

"We expect to see further marginal declines in values over the next six months as the market looks likely to bottom out by year end with, at most, a 5 per cent decline," remarked Stevens.

"This could be offset by potential increased transaction volume as lower prices unlock demand and stimulate renewed interest from single-unit buyers for soon-to-be-completed buildings," he noted.

"From a rentals perspective, demand for studio, one and affordable two-bedroom units is likely to remain strong, with a potential increase in rates in some areas as occupancy levels improve," said Stevens.

On the Abu Dhabi scenario, Asteco said limited supply of new H1 released units helped to limit any major reduction in rental rates with just 800 apartments added including Wave Tower on Reem Island, resulting in an overall drop of three per cent. This trend was replicated in the villa market, however at a reduced rate of just one per cent.

Transaction levels in the capital have been largely quiet with asking rates still relatively high in comparison to other emirates (nominal two per cent decline recorded) despite owners putting units back onto the market; and the ongoing lack of affordable units stymying prospective investors with limited budgets, said Stevens.

"We are still seeing good levels of demand for affordable products like the Al Ghadeer and Al Reef townhouses, with no decline in sales prices, which confirms the appeal, and shortage, of this kind of product in the market," he added.-TradeArabia News Service