According to industry analysts, Dubai and Abu Dhabi have outperformed the world’s major established cities including the likes of London, Paris, and New York by offering more than double the rental yields. This, despite the drop in property prices and rentals over the past few years.
Residential demand in the UAE will remain supported by attractive average rental yields, expects Moody’s Investors Service. Quoting Global Property Guide data, they said that yields ranged between 6 and 7 percent in the past 12 months compared to other major capital cities such as London, Paris, New York, or Hong Kong where average rental yields ranged between 2 and 3 percent.
“In the next 12-18 months, we expect prices and rental yields to fall, as a large amount of new supply comes into the market and demand remains soft,” said Lahlou Meksaoui, assistant vice-president at Moody’s.
Prices and rentals in Dubai will face additional pressure as 117,000 units, which represent 22.5% of the existing residential stock, are expected to be completed before the end of 2020 according to JLL, a real estate consultancy.
In Dubai, Arjman had the highest yields with 12.4 percent gross returns, followed by International City which improved from 9.2% to 10.1% due to healthy demand from migrating Emiratis in the second half of 2018.
Dubai Silicon Oasis, Jumeirah Village Triangle, Town Square, Al Barsha, Dubai Investment Park, Green Community, Dubai Sports City, and Al Quoz, followed with rental returns between 8 and 9 percent.
Downtown Dubai offered the lowest return at 4.5 percent along with Cultural Village, Mirdif, Old town, and Al Sufouh.
Even the lowest yielding areas of the emirate offer higher returns than the average rental returns of 2-3 percent offered by major Western cities.
When considering villas and townhouses, Town Square had the highest rental yields at 7.2 percent. Mudon, Reem (Mira), The Springs, and Jumeirah Village Circle followed closely. Villas in Emirates Hills, Palm Jumeirah, and MBR City offered the lowest rental returns between 2.3 percent to 3.4 percent.
Affordable communities are outperforming their more expensive counterparts in terms of rental yields in Abu Dhabi.
Supply for residential units will outpace demand in the next 12-18 months, expects Moody’s Lahlou Meksaoui.
There will be new sales opportunities, especially from the first time buyer and expatriate segment as they look to cash in on the attractive offers by developers. Offers include extending payment terms, such as post-handover payment plans or paying a proportion of costs such as service charges and Dubai Land Department fees.
According to a recent report by Knight Frank, Dubai is the 18th least expensive city in prime real estate prices. $1 million can buy 143 square meters of prime space as compared to 16sqm in Monaco, 22sqm in Hong Kong, 31sqm in New York and London, and 36sqm in Singapore according to the report.
“Of the cities that we forecast, we expect that five – Buenos Aires, Dubai, Hong Kong, Mumbai, and Shanghai – will see prices fall this year too – New York and Singapore – will see prices remain static and that the remainder will see prices rise, albeit modestly,” said Liam Bailey, Global Head of Research, Knight Frank.