Today, Phidar Advisory released its Dubai residential research note with December data, which is now reported using a 3-month moving average, as well as 2016 year-end data. The report shows nominal movements, but projects further gradual softening.
“Pundits are overlooking the key risks of 2017,” said Jesse Downs, Managing Director of Phidar Advisory. “The strong and strengthening US Dollar, anticipated increase in the cost of debt as well as sluggish regional economic growth do not support a short-term recovery in the region’s hub,” she added.
In December 2016, apartment lease rates declined 0.6%%, while sale prices increase 0.5%, pushing gross yields down to 7.7%, a loss of 8 basis points since November, according to three-month moving averages in the Phidar House Price Index: Dubai 9/5. Lease rates for Single Family Homes (SFH), also referred to as villas, decreased 0.8%, but sale prices increased 0.4%, which pushed yields down to 4.6%, a quarterly loss of 5 basis points in November, using a three-month moving average.
“Residential yield erosion is not sustainable in a year that will experience new risks,” said Ms. Downs. “Weak investment demand and minimal stimulus will put the onus on market fundamentals. Supply is gradually growing, but net job creation still appears weak – a jobless recovery is not a sustainable recovery.” she added.
In 2016, Phidar’s Dubai Real Estate Investment Demand Index REIDI decreased by 8.2% compared to 2015, driven primarily by exchange rate fluctuations. In the year, the US dollar – and therefore UAE Dirham – strengthened or remained relatively stable against 13 of the 14 floating currencies included in the REIDI. The only exception was the Singaporean Dollar, which gained 1% against the USD. Considering only the FX volatility of the currencies included in the REIDI, the composite index declined 28% in 2016, YOY. The top three buyers of individual completed units in Dubai are Indians, Britons, and Pakistanis. Their respective currencies (INR, GBP, PKR) when combined into a weighted index, fell 37% in 2016, YOY.
“Market sentiment can always pull the market in an irrational direction,” she said. “But considering only fundamentals, it is too early to call a market bottom and recovery, there are simply too many factors contributing to uncertainty in 2017,” concluded Ms. Downs.
