UAE RESIDENTIAL MARKET REVIEW - RESEARCH - Q1 2018 - Knight Frank
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RESEARCH
UAE RESIDENTIAL
MARKET REVIEW
Q1 2018
PRICES CONTINUE TO SOFTEN IN ABU DHABI’S AND DUBAI’S RESIDENTIAL MARKETSRESIDENTIAL RESEARCH
UAE RESIDENTIAL
MARKET REVIEW Q1 2018
Key findings The fragmented market performance across Dubai’s residential sector
Mainstream residential prices in Dubai is continuing, as a growing number of sub-markets begin to record
fell 4.8% over the year to Q1 2018. either stable or improving prices. Abu Dhabi’s market is starting to see
price falls moderate, however the market faces strong demand and
On a community basis, data as at supply headwinds.
March 2018 shows that out of the
54 communities tracked by Property
Monitor, 46 (87%) have registered Dubai Mainstream residential prices in Dubai fell
4.8% over the year to Q1 2018 according
annual price falls, a year earlier all
communities across Dubai were Dubai’s residential property market to data from REIDIN. Prices across the
witnessing prices softening. started 2018 on a weak footing as city fell relatively evenly for both villas
demand slowed in certain segments of (5.0%) and for apartments (4.7%).
Prime residential prices in the year to the market due to a more fragile economic
backdrop with GDP growth slowing from On a community basis, data as at
March 2018 fell on average by 2.6%, up March 2018 shows that out of the 54
from the 5.5% decline witnessed a year 3.1% in 2016 to 2.8% in 2017. Despite
the slowdown, business confidence has communities tracked by Property Monitor,
earlier.
remained relatively upbeat at the start of 46 (87%) have registered annual price
the year, however consumer confidence falls. A year earlier all communities across
In the year to Q1 2018 average sales Dubai were witnessing prices softening.
prices in Abu Dhabi fell by 7.2%, an has been weak, impacting overall
demand. More so, seven of these areas have
increase from the 6.8% decline a year
registered price growth over the year to
earlier, prices falls have moderated in Proposed developments in Dubai’s Q1 2018. The current gap between the top
each of the last three quarters. Mortgage Law may help provide some and bottom ranking communities, in terms
support for the sector. Whilst the details of annual price performance, currently
of the new law are still to be finalised, stands at 7.6%. These price movements
the objectives set out by Dubai Land show that we are continuing to see a
Department indicate that it is likely to have fragmented market emerge.
a positive impact for both domestic and
foreign demand by encouraging access Rental rates across Dubai fell on average
to alternative financing methods, from an by 7.7% in the year to Q1 2018, with
investor, owner-occupier and institutional apartment rents falling by 7.3% and
standpoint. Villa rents by 10.1% over the same
time period. Unlike the sales market
where we are beginning to see certain
Mainstream market
FIGURE 1
Dubai mainstream residential, year-on-year % change
TAIMUR KHAN 50%
Senior Analyst
40%
“There is a considerable 30%
amount of supply scheduled 20%
to enter the market this year, 10%
if this supply is delivered on
schedule we are likely to see 0%
prices continue to soften.” -10%
-20%
-30%
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Please refer to the important notice Source: Knight Frank Research Citywide Villas Apartments
at the end of this report.UAE RESIDENTIAL MARKET REVIEW Q1 2018
areas outperform the market, in the
FIGURE 2
rental market all communities registered
Dubai rents, year-on-year % change
declining annual rental rates.
35%
30%
Prime Market 25%
20%
Contrary to the broader trends witnessed
15%
in the mainstream market, prime markets 10%
in Dubai are seeing somewhat of a 5%
stabilisation in price performance. Prime 0%
residential prices in the year to March -5%
2018 fell on average by 2.6%, up from the -10%
5.5% decline witnessed a year earlier. -15%
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
As noted in Knight Frank’s last UAE
residential market review, prime sub-
market performance is diverging. The Citywide Villas Apartments
Source: Knight Frank Research
Lakes and Palm Jumeirah recorded
price growth of 2.6% and 1.2% in the
12 months to March 2018 respectively.
Prices in Downtown continue to edge FIGURE 3
lower however the rate of price falls is Prime market performance, year-on-year % change
moderating with the latest year-on-year
rate falling to 5.2%, down from the 9.8% 40%
decline recorded in 2017. In Emirates
Hills prices have fallen by 12.2% in the 30%
year to Q1 2018, lower levels of demand
and more realistic vendor expectations 20%
have driven prices lower.
10%
Yields 0%
Mainstream yields in Dubai stood at
6.75% and prime yields at 5.48%. -10%
Whilst mainstream yields are up from the
previous quarter they remain below their -20%
level of 6.95% a year earlier. Prime yields
JAN 2012
MAR 2012
MAY 2012
JUL 2012
SEP 2012
NOV 2012
JAN 2013
MAR 2013
MAY 2013
JUL 2013
SEP 2013
NOV 2013
JAN 2014
MAR 2014
MAY 2014
JUL 2014
SEP 2014
NOV 2014
JAN 2015
MAR 2015
MAY 2015
JUL 2015
SEP 2015
NOV 2015
JAN 2016
MAR 2016
MAY 2016
JUL 2016
SEP 2016
NOV 2016
JAN 2017
MAR 2017
MAY 2017
JUL 2017
SEP 2017
NOV 2017
JAN 2018
MAR 2018
have fallen for five consecutive months
and are likely to continue to decrease as
prime rents remain under pressure across
Downtown Emirates Hills The Lakes
the city.
Source: Knight Frank Research Palm Jumeirah Prime composite index
Transactions
Mainstream transaction volumes in the Living and Palm Jumeirah both witnessed
FIGURE 4
12 months to Q1 2018 increased by lower transaction levels in the same
Dubai yields, Q1 2018
10.6% when compared to the same 12 month period. Overall, we remain
period in 2017. Over the same time optimistic as to the performance of the
period, secondary market transactions fell prime market relative to the mainstream DIRECTION*
marginally by 1.3% however despite the market over the course of 2018. Aside
slow first quarter, off-plan transactions from Downtown, the level of supply due Mainstream yield 6.74%
increased by 18.4% on an annual basis, to be delivered in prime communities
compared to the same annual period a remains manageable, this combined with
more realistic vendor pricing and the high Prime yield 5.48%
year earlier.
quality product offering will continue to
Prime transaction volumes have fallen
drive demand in the prime market. *Note: Direction compared to last quarter
16% in the year to Q1 2018. Downtown
Dubai was the only prime area where
transaction volumes increased within the Source: Knight Frank Research
prime segment of the market. EmiratesUAE RESIDENTIAL MARKET REVIEW Q1 2018
FIGURE 5 FIGURE 6
Dubai, transactions Dubai residential supply, number of units
Number of sales
3,000 90% 700k
80%
2,500 600k
70%
500k
2,000 60%
50% 400k
1,500
40% 300k
1,000 30%
200k
20%
500
10% 100k
0 0% 0
2012
2013
2014
2015
2016
2017
2018
2019
2020
JAN 2016
FEB 2016
MAR 2016
APR 2016
MAY 2016
JUN 2016
JUL 2016
AUG 2016
SEP 2016
OCT 2016
NOV 2016
DEC 2016
JAN 2017
FEB 2017
MAR 2017
APR 2017
MAY 2017
JUN 2017
JUL 2017
AUG 2017
SEP 2017
OCT 2017
NOV 2017
DEC 2017
JAN 2018
FEB 2018
MAR 2018
Secondary, year-on-year % change Off plan, year-on-year % change Existing supply
Source: Knight Frank Research Off plan as % of total (RHS) Source: Knight Frank Research Forecast supply
Demand There are three main factors which Overall there is cautious optimism for
could prove to be strong headwinds Dubai’s economy with GDP growth
Dubai Land Department reported that for the residential market and its future forecast at 3.5% and employment growth
in Q1 2018 UAE nationals remained the performance. forecast to increase to 1.6% in 2018, up
largest buyer group in Dubai with AED from 0.7% in 2017. This combined with
4bn in transactions. Indian investors The reliance on stable and relatively high
a recent fiscal stimulus by the Dubai
continued to rank as the largest foreign oil prices for regional GDP growth remains
Government as well as the new Mortgage
nationality to invest in Dubai with AED 3bn as the single largest economic risk for the
Law may provide further support for the
in property purchases in Q1 2018. Saudi region, albeit a continually abating one
residential market.
Arabian investors ranked third with total due to various economic diversification
investments amounting to nearly AED strategies. Any sudden supply side
1.3bn. Pakistani investors ranked fourth shocks which adversely impact oil prices
overall and investors from the UK fifth, could lead to a slowdown in the economy
a reverse in positions from the rankings and lower consumer confidence which in
in 2017. Chinese, Egyptian, Russian, turn would impact the residential market.
Jordanian and Canadian nationals Secondly, there is a considerable level of
occupied the rankings from sixth to tenth supply due to be delivered to the market
respectively. this year in Dubai. Knight Frank expect in
2018, 32,727 units are scheduled to be
delivered. If this level of supply comes
Outlook to fruition it may drive prices lower and
The outlook and sentiment for Dubai’s could impact confidence - at least in the
GDP in 2018 remains positive on the back short run. However, the severity of this will MARIA MORRIS
of stronger global growth forecasts by very much vary community by community Partner, Head of MENA Residential
the IMF, up 0.2% to 3.9% for both 2018 and we anticipate that pricing in mature
and 2019. Furthermore, whilst Dubai’s communities which are rich in amenities “Aside from Downtown,
GDP is not as sensitive to a slowdown and offer good connectivity, is likely to be the level of supply due
in the hydrocarbon sector compared to impacted the least as a result of this. More to be delivered in prime
its regional peers, due to its diversified so, as developers more actively phase in
communities remains
economic structure, the slowdown has supply this may ease pressure on prices.
impacted ancillary businesses which
manageable, this combined
service this sector from Dubai given its
Finally, after a period of almost of a year of with more realistic vendor
devaluation, the Emirati Dirham has begun pricing and the high
regional hub and leading financial centre
to strengthen. If this trend continues it
status. Therefore, the increase in oil prices quality product offering will
may impact foreign demand for property
to US$69.6 as at March 2018, up from
as investing in Dubai’s market becomes
continue to drive demand in
US$53.7 a year earlier will help underpin
more expensive for foreign currency the prime market.”
economic growth this year. In May 2018
holders.
the oil price per barrel reached up to
US$80, the highest level since November
2014.UAE RESIDENTIAL MARKET REVIEW Q1 2018
Abu Dhabi Looking at key sub-markets we have seen
price falls in all Abu Dhabi’s key markets
Outlook
and property types although the range The outlook for Abu Dhabi’s economy
Abu Dhabi’s GDP decreased by 1.0%
varies (Figure 9). Villas on Saadiyat Island is positive, however we remain cautious
in 2017, with the crude and natural gas
saw prices falls moderating to 4.4% regarding the fragility of the recovery. The
sector’s slowdown of 5.2% continuing
in the year to Q1 2018 from the 8.9% recovery in oil prices to highs not seen
to be a drag on the overall growth rate.
decline seen in the same time period a since November 2014 and spending on
Despite the weaker performance in the oil
year earlier. Al Raha Beach villas saw the economic diversification plans, particularly
sector, the non-oil sector has remained
largest shift down in prices. In the year to those related to the travel and tourism
resilient with 3% growth recorded in 2017.
Q1 2017 annual price growth registered market are likely to help underpin growth.
Therefore whilst Abu Dhabi’s economic
at 10.0%, over the same time period in GDP growth in Abu Dhabi is forecast to
backdrop remains challenged, we are
2018 prices have fallen by 7.5%. Finally, reach 5.8% in 2018 and also in 2019.
beginning to see some resilience return to
the market. apartments on Reem Island saw the However despite reasons for positivity,
largest annual price falls recorded across we remain cautious on the outlook of
these sub-markets at 9.0%. the market due to the level of supply set
Market Performance to be delivered in 2018. Knight Frank
Rental rates across Abu Dhabi fell on
In the year to Q1 2018 average sales average by 10.3% in the year to Q1 2018, estimate that 8,121 residential units will
prices in the capital fell by 7.2%, an with apartment rents falling by 10.8% and be delivered. With investors and owner-
increase from the 6.8% decline a Villa rents by 9.3% over the same time occupiers choosing to adopt a ‘wait
year earlier, however prices falls have period. Rents have fallen consecutively for and see approach’ leading to a lack of
moderated in each of the last three 24 months in Abu Dhabi. demand we are unlikely to see the current
quarters. Villa prices have fallen by 3.0% residential market situation begin to
Yields in Abu Dhabi fell to 6.72% as at Q1 improve in 2018.
and apartment prices by 8.6% over the
2018, down from 6.9% a year earlier.
same time period.
FIGURE 7 FIGURE 8
Abu Dhabi mainstream residential, year-on-year % change Abu Dhabi yield, Q1 2018
40%
30%
20%
10%
DIRECTION*
0%
Mainstream yield 6.7%
-10%
-20%
*Note: Direction compared to last quarter
-30%
-40%
Q1 2010
Q2 2010
Q3 2010
Q1 2011
Q2 2011
Q3 2011
Q1 2012
Q2 2012
Q3 2012
Q1 2013
Q2 2013
Q3 2013
Q1 2014
Q2 2014
Q3 2014
Q1 2015
Q2 2015
Q3 2015
Q1 2016
Q2 2016
Q3 2016
Q1 2017
Q2 2017
Q3 2017
Q3 2018
Source: Knight Frank Research All properties Villas Apartments Source: Knight Frank Research
FIGURE 9
Abu Dhabi, sub markets price performance
15%
10%
5%
0%
-5%
-10%
-15%
Reem Island, apartments Al Raha Beach, apartments Al Raha Beach, villas Al Reef, villas Saadiyat Island, villas
Source: Knight Frank Research Year-on-year % change to Q1 2018 Year-on-year % change to Q1 2017FIGURE 10 RESEARCH
Abu Dhabi rents, year-on-year % change Taimur Khan
Senior Analyst
2% +971 56 4202 312
taimur.khan@knightfrank.com
0%
-2% MENA RESIDENTIAL
-4% Maria Morris
Partner
-6%
+971 56 4542 983
-8% maria.morris@me.knightfrank.com
-10%
DEVELOPMENT CONSULTANCY &
-12% RESEARCH
-14%
Harmen De Jong
Partner
MAR 2016
APR 2016
MAY 2016
JUN 2016
JUL 2016
AUG 2016
SEP 2016
OCT 2016
NOV 2016
DEC 2016
JAN 2017
FEB 2017
MAR 2017
APR 2017
MAY 2017
JUN 2017
JUL 2017
AUG 2017
SEP 2017
COT 2017
NOV 2017
DEC 2017
JAN 2018
FEB 2018
MAR 2018
+971 56 1766 588
harmen.dejong@me.knightfrank.com
VALUATION & ADVISORY SERVICES
Stephen Flanagan, MRICS
Source: Knight Frank Research Citywide Villas Apartments
Partner
+971 50 8133 402
stephen.flanagan@me.knightfrank.com
FIGURE 11
Abu Dhabi residential supply, number of units CAPITAL MARKETS / INVESTMENT
Joseph Morris, MRICS
265k
Partner
+971 50 5036 351
260k joseph.morris@me.knightfrank.com
255k
MEDIA & MARKETING
250k Nicola Milton
Head of Middle East Marketing
245k
+971 56 6116 368
240k nicola.milton@me.knightfrank.com
235k
2014 2015 2016 2017 2018 2019 2020
Source: Knight Frank Research Existing supply Forecast supply
Important Notice
RECENT MARKET-LEADING RESEARCH PUBLICATIONS © Knight Frank 2018 - This report is published
for general information only and not to be relied
upon in any way. Although high standards have
been used in the preparation of the information,
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report, no responsibility or liability whatsoever
can be accepted by Knight Frank for any loss or
damage resultant from any use of, reliance on or
reference to the contents of this document. As a
general report, this material does not necessarily
represent the view of Knight Frank in relation to
particular properties or projects. Reproduction of
this report in whole or in part is not allowed without
prior written approval of Knight Frank to the form
Abu Dhabi Office Dubai Office Market The Hub Report 2018 The Wealth Report City and content within which it appears.
Market Review Q1 2018 Review Q1 2018 Series: Dubai Edition Knight Frank UAE Limited (Dubai Branch) Prime
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