Dubai Residential Report, Q2 2020

COVID-19’S IMPACT DISRUPTED DUBAI’S RESIDENTIAL SECTOR, AFFECTING AGENCY AND DEVELOPER ACTIVITY OVER Q2

Dubai’s residential sector faced a challenging second quarter, with social distancing measures, coupled with Covid-19’s economic impact, affecting market performance.

Average apartment rents fell by 3.9% quarter-on-quarter (q-o-q) and 9.5% year-on-year (y-o-y), with average villa rents seeing more moderate declines of 2.6% q-o-q and 7.2% y-o-y. While social distancing policies broadly restricted the rental market over April, activity recovered in May, driven by tenants looking to reduce rental costs or take advantage of lower rents to upsize.

The impact on residential prices was less pronounced, with the average price of recorded off-plan transactions seeing a slight uplift, while both new listing and completed unit prices fell. On average, Chestertons estimates that apartment and villa prices saw quarterly falls of 2.6% and 1.2%, respectively.

A total of 5,233 residential units were sold over Q2, representing a quarterly decline of 45%, with corresponding transaction value falling by 40% to AED 9.06 billion. When looked at on a monthly basis, June transaction figures were encouraging and point towards more typical sales volumes over the third quarter.

While clearly a testing period, there were also positives to draw from Q2. Developers held back new off-plan sales launches, a move that bodes well for more balanced supply and demand dynamics medium-term. Dubai also took a step towards greater market transparency, with the routine release of its official house price index, Mo’asher, likely to give rise to greater investor confidence.

The outlook for Dubai’s residential market will be closely tied to the performance of the wider economy. Over the second half of 2020, we expect residential prices and rents to fall further, driven by a declining expatriate population and an overall private sector contraction. Assuming a return to economic growth next year, it is likely that residential prices will see greater stability over 2021.