The residential rents continue to decline across Dubai, UAE, mainly due to weak demand and changes in housing budgets, which will have the starkest impact on high income housing, according to a report by property expert Phidar Advisory.

In its recently released residential research note with March data, Phidar Advisory said there had been a nominal to moderate drop in quarterly price and rents and projects were further softening.

"The market is undergoing a false start now," explained Jesse Downs, the managing director of Phidar Advisory.

"Apartment sale prices declined only nominally this quarter and volumes increased, which could be mistaken for an impending recovery, but the market fundamentals still do not support this in the short term," she added.

In the first quarter, the apartment lease rates fell 2.5 per cent, while sale prices declined 0.5 per cent, pushing gross yields down to 7.55 per cent, a three-month loss of 15 basis points, according to a three-month moving average of the Phidar House Price Index: Dubai 9/5.

Lease rates for single family homes (SFH), also referred to as villas, decreased 2.9 per cent and sale prices declined 5.4 per cent, which pushed yields up to 4.75 per cent, a quarterly gain of 10 basis points, using a three-month moving averagem, stated the report.

"After eroding through the end of last year, villa yields have started to expand and now apartments need to go through a similar correction," remarked Downs.

"Rents continue to decline due to weak demand and changes in housing budgets, which will have the starkest impact on high income housing," she added.

In Q1-2017, Phidar’s Dubai Real Estate Investment Demand Index Reidi decreased by 20.4 per cent compared to 2016, driven by exchange rate fluctuations and downward revisions in GDP (gross domestic product) forecasts.

In the first quarter, the US dollar – and therefore UAE dirham – strengthened against 9 of the 14 floating currencies included in the Reidi compared to the last quarter of 2016.

"It is unsustainable to have yield erosion amid rising debt cost and liquidity constraints," stated Downs.

"As interest rates creep up and banks likely impose tighter lending standards, residential volume and prices should decrease," she added.-TradeArabia News Service