With residential rents maintaining a downward trajectory during the third quarter, the UAE real estate sector is under tremendous pressure this year and this trend is likely to spill over into early 2019, according to Asteco, the UAE’s largest property services company.

In Dubai, villa and apartment rental rates maintained the downward trajectory observed over the past quarters, decreasing by 3 per cent and 2 per cent since Q2 2018, while the decline of residential sales prices has been more pronounced at 4 per cent.

Following a period of relative stability, office rental rates too decreased 5 per cent over the last three months as a result of new supply and limited, if not negative, business and employment growth, said Asteco in its UAE Real Estate Report Q3 2018 released recently.

The quarterly report highlights key market trends and major project announcements across Dubai, Abu Dhabi, Al Ain and the Northern Emirates, and offers an outlook for the remainder of the year and early 2019.

Neighborhoods with high handover volumes, both within the city as well as across surrounding developments, recorded the sharpest rental rate downturn and a significant rise in tenant turnover.

John Stevens, the managing director of Asteco, said: “Rental rates across all asset classes are expected to come under further pressure this year, and this trend is likely to spill over into early 2019.”

In Abu Dhabi, apartment sales prices witnessed a marginal decline of 1 per cent over Q3 2018, mainly due to the limited demand for completed units available within the secondary market, translating into low transactional volumes.

However, off-plan and newly completed properties fared better and continued to generate interest, he noted.

Apartment rental rates fell by an average of 3 per cent since Q2 2018, with the highest drop reported for mid- and lower-end properties.

Villa rental rates followed a similar trend with a quarterly decrease of 1 per cent. The demand for office space remained limited. While the average rental rates softened by 1 per cent over the last three months, some mid- to low-end commercial buildings recorded significant annual declines of up to 10 per cent, he added.

Speaking on the capital’s market outlook, Stevens said: “Residential rents continued to soften over the third quarter due to new supply and reduced levels of demand, largely attributed to a bearish business outlook. These conditions led to an increase in vacancies, particularly in buildings with lower-quality specifications.”

In Al Ain, the overall subdued market activity has resulted in relatively static rental rates in Q3 2018 across most asset classes, with moderate annual drops of 6 per cent for apartments, and 5 per cent for office and retail rents. Meanwhile, villa rental rates recorded a marginal decrease of 2 per cent over the quarter.

On the Northern Emirates outlook, Asteco said the apartment rental rates reported an average quarterly decline of 4 per cent, with Ras Al Khaimah and Ajman taking the lead with 6 per cent, followed by Sharjah and Fujairah with 3 per cent, while Umm Al Quwain rates softened marginally by 1 per cent.

In Sharjah, office rental rates continued their downward trend with quarterly and annual reductions of 3 per cent and 8 per cent on the back of low demand.

"Developers, particularly in Sharjah, have been sharing statements of ambitious project launches, progress reports and completion updates despite the tepid market outlook. Due to the rise of master-planned communities and large-scale developments, concerns about a possible oversupply scenario in the future are starting to emerge," he added.

Asteco said overall, the market has seen a substantial delay in project handovers, mainly resulting from project delays and overly ambitious handover schedules.

Therefore, a sizeable number of units previously forecasted for completion in H2 2018, will only be ready in 2019, said the expert.

Dubai’s new inventory added in Q3 2018 comprises 3,850 apartments and 570 villas and townhouses, bringing the total for the year to date to just over 12,000 residences, with projections for the final quarter in line with these figures, it stated.

With a slowdown in new project launches, demand in Q3 2018 focused on completed properties available directly from developers or in the secondary market, it added.

According to Asteco, the real estate sector has also welcomed the introduction of new initiatives, such as rent-to-own schemes and crowdfunding.

Summing up the overall outlook for the UAE property landscape, Stevens said: "Real estate professionals and participants have been increasingly vocal in urging the Central Bank of the UAE to lower existing loan-to-value (LTV) ratios to facilitate home ownership for those unable to afford the current mortgage deposit requirements."

"Although no such changes have been announced at the time of compiling the report, there appears to be a consensus that such a reform would provide a much-needed stimulus to the property market," he noted.

Outlining the trends dominating the rental segment, Stevens said: "We have observed several behavior patterns among residents across the country, such as downsizing rental units, seeking value-for-money properties and moving into less-established areas."

"On the other hand, we have also noticed many tenants taking advantage of the sustained rental rate downturn and using this opportunity to upgrade to larger units with better-quality specifications, located in more popular areas," he added.-TradeArabia News Service