Dubai, Abu Dhabi bank on dynamic rental yields

The real estate sectors of both Dubai and Abu Dhabi remained buoyant in October 2015 thanks to the strength of their rental segments. While stakeholders in Dubai have heaved a sigh of relief following negation by many seasoned players of the exaggerated number of units (25,000) expected to enter the market, Abu Dhabi saw rents rising further owing to yet-to-ease supply pressure. Property developers have been positive nonetheless, with most saying their product launches had been taken up by eager customers scanning the market for quality projects in abundance.

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While prices adjust to inflationary gains in the past, there has been no stopping the upward growth of Dubai's rental segment. This has primarily been a result of a rise in working population that is demanding rental units by the hundreds. The rental rise has forced many a tenants to look for affordable options across the emirate, helping demand for areas such International City, Discovery Gardens and Bur Dubai grow.

The overall average rental yield of residential properties in Dubai in October remained 5.5% of the property value. Interestingly it was still more than global realty hotspots like London, which rests on 4% yield.



Per Bayut.com's database, the top five localities for renting properties in Dubai were Dubai Marina, Jumeirah Lakes Towers, Bur Dubai, Downtown Dubai and Dubai Silicon Oasis, in that order. Although Discovery Gardens and International City could not make it to the top five localities, they did register respective increases in search hits of 73% and 71% this October.

Dubai Marina saw a 58% increase in search hits to dominate all localities for renting properties in Dubai. The second and third positions were secured by Jumeirah Lakes Towers (JLT) and Bur Dubai with 55% and 53% increase in search hits, respectively. Downtown Dubai landed on the fourth spot with a 47% increase and Dubai Silicon Oasis secured the fifth spot with a 69% growth in search hits in October compared with September.

The real estate resale market also performed better than expected. Besides international economic and security crises, the low sale transaction volumes have been a result of dented investor sentiment following faulty estimates at the beginning of the year that said 25,000 new units would enter the market this year. Bayut had said in its earlier reports that it expected only half of this number to actually make it to the market, an argument now proving correct.

The limited supply coupled with a rising population has kept the rents stable across Dubai. Overall apartment rents across Dubai posted a month-on-month (MoM) increase of 1.07% in October. Studio apartments fetched an average price of AED 850,000 and with average annual rent of AED 62,000 [0.785% month-on-month hike], they offered an average yield of 7.3%.

One-bed apartments commanded an average of AED 1.5 million. Although MoM rents fell a marginal 1.79%, the units still offered a yield of 6.5% at an average rent of t AED 101,000. Two-bed apartments fetched an average price of AED 2.7 million, while average rents remained around the AED 160,000 mark.The average rents for the category increased 1.92% in October, offering a yield of 5.8%.

Three-bed apartments cost AED 4.2 million on average, offering rents of about AED 211,000. A MoM rental decrease of 2.87% meant yield dropped to 4.9%.

The four-plus apartment category commanded an average rent of AED 356,000, a 3.19% increase and offered a yield of 2.9%.

Top five areas getting most search hits for buying in Dubai were Dubai Marina, Jumeirah Lakes Towers (JLT), Downtown Dubai, Dubai Sports City (DSC) and Jumeirah Beach Residence (JBR), in that order.



ABU DHABI

Abu Dhabi's real estate market performed considerably well in October. Offering some of the highest rental returns on investment in the region, the UAE capital is fast-becoming a point of interest for international investors.

The online database of Bayut.com revealed residents favouring localities like Khalifa City A and Mohammed bin Zayed City over localities like Al Khalidiyah and Saadiyat Island. The top five localities for renting apartments in Abu Dhabi in October were as follows:

1. Al Reem Island

2. Al Raha Beach

3. Khalifa City A

4. Al Reef

5. Al Ghadeer

Al Reem Island and Al Raha Beach retained their first and second positions with respective search increases of 27.4% and 41.2% in October compared with September 2015. Khalifa City A secured the third spot with a 37% increase in search hits. Al Reef and Al Ghadeer secured the fourth and fifth spot with 20.9% and 36% increase in popularity, respectively.

Bayut.com found that the properties for rent in Abu Dhabi were offering an average yield of 6.5%, even higher than the business hub that is Dubai (5.22%).

Studio apartments in Abu Dhabi commanded an average price of AED 752,000 in October 2015. Average annual rents for these apartments were AED 65,000 and the rental yields stood at 8.7%. One-bed apartments were priced at an average of AED 1.3 million, offering average annual rents of AED 95,789 and a rental yield of 7.3%.

Two-bed apartments cost AED 1.9 million on average. The average rents stood at AED 133,292 with a rental yield of 7%. Similarly, the average price of three-bed apartments was AED 2.8 million, the average annual rent remained AED 192,159 and average annual rental yield was 6.8%.

The four-plus apartment category commanded an average of AED 5.5 million. Average annual rent for these apartments was AED 264,722, offering a yield of 4.7%

Our Take

Now that the exaggerated news of unit oversupply in Dubai's market put to rest for good, developers are sure to get focused on finishing off projects at hand. Investors who watched the action from the side-lines for months will likely be encouraged to test the realty waters. Dubai's world-beating rental returns have been making headlines and drawing attention of big and small investors alike. Yields as high as 7% in certain apartment categories coupled with a falling trend in prices make the potential deal too sweet to be true. And that's why we think Dubai's real estate sector has not much to fret over and investment will return soon.

Abu Dhabi on the other hand is gaining strength by the day, albeit at the cost of becoming too expensive an investment and residential option for some owing to rising sale and rental values. Though the upward trajectory of values is a boon for the emirate, a more regulated supply to offset the rising hosing demand and values would be more than welcome. We believe the government has taken the right measures with plans to introduce a rental index and more scrutiny of the real estate market.

As a topsy-turvy year in UAE's realty history approaches its end, we reckon the next will see a set of much more mature buyers drawn in by not only Abu Dhabi and Dubai, but also smaller emirates like Ras Al Khaimah and Sharjah that have stepped up efforts to attract foreign capital.

The going has certainly gotten tough in the face of a global slowdown, but the tough realty of UAE has already gotten going.

 

credit to ZAWYA