Samir Salya on Dubai’s Falling Real Estate Investment Yields

With the real estate market in Dubai experiencing a fall in recent months, the rental market is set to experience a similar slump. As rents continue to decline in the region, yield compressions will be seen in many areas. With no upturn predicted over the next few months, the real estate market is expected to remain subdued and decline slightly throughout the beginning of 2018.

Falls seen across the market

The falling rental income yields on markets comes as the market adjusts itself the decline of Dubai’s real estate. Weakening prices encouraged a shift towards home ownership, driving down rental demand.

Core Savills’ 2018 Dubai Investment Outlook reports: “In 2018, a variety of economic parameters in Dubai are beginning to face headwinds, with the real estate market facing its own particular challenges. Further rental declines, the ongoing strength of the US dollar and the imminent – albeit probably limited inflationary effects of the introduction of VAT in the Emirates are all expected to compress investment yields.”

Subdued rental markets

The first quarter of 2018 will continue to see a decline in the rental market. This is due to upcoming supply, the impact of VAT introductions and other factors holding down prices. According to a new report by Dubai-based property consultancy Cavendish Maxwell, residential property prices fell at a more substantial rate than sales prices, resulting in these compressions. As of December 2017, residential rates averaged a 4% annual decrease, compared to a 2% average decline for residential sales prices.

Speaking in this report, Cavendish Maxwell state: “Rent decline is expected to continue during the first quarter of 2018, with new handovers planned in both freehold and leasehold communities across Dubai. The VAT rollout in 2018 could also impact some businesses and their recruitment plans. These factors point to a subdued outlook for residential property rents in 2018.”

Strength in affordable housing

The affordable and lower mid-market segments are only seeing this stronger decline in sales prices, with the price of rent seeing only slight decline. This allowed rental yields to rise, creating more buyer demand for affordable housing. This buyer demand was mainly made up of investors.

In Core Savills’ 2018 Dubai Investment Outlook, Core Savills CEO David Godchaux states: “Investor buyers continue being drawn to the affordable segment due to the current high yields and easier payment plans while a few developers see robust off-plan transaction volumes as an encouraging sign and continue bringing more stock to the market.”

Although this remains a bright spot in the Dubai property market, the increased demand could lead to oversupply in the market. The sustainability of these positive rental yields remains to be seen in the long run.

About Samir Salya

Samir Salya is the Chairman of Reign Holdings and is involved in UK and UAE real estate and construction. Samir holds over 20 years’ experience in executive management, business expansion, performance improvement, sales and marketing.