_Dubai - Residential Market Expected to Remain Stable in H1 2017

The residential market in Dubai continued to soften in 2016, albeit at a slower rate. Sale prices in the mainstream market dropped 5% in 2016 versus 7% in 2015, whilst prices in the prime residential market declined 4% in 2016 versus 5% in 2015. Despite the annual dip in prices however, the General and Prime REIDIN sale price indices remained flat on a monthly basis since August 2016. This leads us to believe the residential market is reaching its cyclical trough.

Over the next 5 years and as Dubai prepares to host the Expo 2020, further government spending is expected to boost the market and thus provide positive sentiment to investors. In addition, international corporates are expected to expand their commercial activity, utilising Dubai as a regional hub, thus prompting demand for office space and more residential properties. 

In Abu Dhabi the General REIDIN sale price index registered no increase in 2016. While there has been a slowdown in demand on the back of job cuts and corporate restructuring, sale prices remained flat given the limited availability of investment grade quality product. Similarly, rental values remained flat throughout the year following a 1% increase in 2015.

2017 Outlook

We expect the residential property market in Dubai to gradually recover in 2017 with a potential uptick in sale prices and rents from mid-2017 onwards. Government commitment to spending on infrastructure and facilities, along with the realisation among developers for the need to phase out projects in line with demand, lead us to believe the real estate market in Dubai has become more mature and resilient.

In Abu Dhabi, the reinstatement of a 5% rental cap is unlikely to impact the market given rents are expected to decline further. Similarly, sale prices are likely to drop amid continued cost cutting and corporate restructuring. Meanwhile, the introduction of a 3% housing fee on annual rent is expected to increase cost pressures on households, which would further aggravate demand for property.