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Dubai property market active due to fall in rents and sales prices

KUALA LUMPUR: The property market in Dubai showed a drop rental and sale prices for apartments, villas and offices for the third quarter (3Q) from the previous quarter (2Q), a report said.

The Asteco Property Management 3Q2010 Dubai Report stated that these declines have led to increased transactions, while lower office rental rates have encouraged companies to take on longer leases instead of purchasing office space.

Mortgage market update

Asteco noted that the mortgage market is easing the minds of investors and buyers. John Charcol Middle East is working with a number of lenders who recently introduced fixed-rate products onto the market from 5.99% for the first year.

Another move forward is allowing selected lenders to provide finance for completed properties with title deeds.

Apartments

The Asteco report on apartments showed an average drop of 6% from the previous quarter, but transaction activities were surprisingly buoyant during the summer and Ramadan period.

These periods are usually the slowest months, as tenants look for cheaper and practical accommodation.

Following a similar trend are apartment sales prices, which also fell 6% on average for selected locations. Asteco explained that this was caused by the increase in supply of apartments.

However, sales activity increased due “to buyers taking advantage of attractive deals often coming from owners who are expected to take handover of their unit but are unable to make the final payment, which often constitutes a large percentage of the overall sales price.”

Transaction activity for new investors, however, has dropped due to the large dip in rent rates, high service charges and lack of attractive mortgage finance.

Asteco believes that further declines are expected, but sales prices for affordable developments like Discovery Gardens and Jumeirah Lakes Towers have been relatively static over the last three months.

Villas

Rentals for villas have decreased by 4% since the last quarter due to the increase in supply of such developments like Layan and The Villa in Dubailand and Cedre Villas in Dubai Silicon Oasis.

It added that take-up was also slow due to sheer volume of pent-up villa stock and the continuous handover of new villas.

The report noted that there appears to be a migration of tenants to more affordable units to the outskirts of Dubai despite the location disadvantage.

As for sales prices, villas dropped by 7% on average, after remaining stable during 2Q2010. The Meadows and The Springs have decreased by 11% and 10% from the last quarter due to the large number of units for sale. Lower sales prices have caused people to buy not only in these locations, but other places that have lowered their asking price.

Townhouses and smaller villas are in demand due to their lower price point. Asteco believes this trend will continue in the short to medium term.

Offices

The rental rates for offices experienced a decline of 4% on average over the last three months, due to the subdued transactions over the summer period and Ramadan. Asteco explains that a majority of companies expect rents to decline further and will only decide on moving by 4Q2010 or early 2011.

Leasing rates in Tecom have seen the greatest decrease due to the handover of Cayan Business Centre and the general oversupply in surrounding developments.

Overall, Asteco believes that transaction activities will pick up while rents continue to decline.

Long-term anchor tenants are expected to renegotiate lower rental rates while minimal relocation demand will continue as new supply enters the market and companies take advantage of better locations and facilities.

As for sale prices, Asteco revealed that Dubai’s office market suffers from weak end-user and investor demand, which is predominantly rooted in the cautiousness of potential tenants and the sheer amount of supply.

Due to the lower rental rates, many companies are looking to sign long-term leases rather than buy. Office sales prices, Asteco believes, are likely to continue dropping in the short to medium team.
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