Why Smaller Apartments Prices May Face Pressure In Dubai Communities

The population growth in Dubai results in high demand for housing and builds confidence in the property market, throughout the wider Dubai properties, and in the overall housing market. However, analysts are becoming more cautious regarding studios and one-bedroom apartments in those communities that have rising inventory of product relative to the rate at which units are moving or being sold. Information from a number of market reports indicates that a number of future residential deliveries are focused in a small number of growth communities with the majority of product being smaller in size (i.e. studio and one-bedroom apartments).

Five Communities Likely to Be Affected by Price Decline

Based upon the number of apartments forthcoming to those five areas and the type of apartments stock levels are forecasted to decline relative to new inventory.

• Jumeirah Village Circle & Jumeirah Village Triangle
• Dubai South
• MBR City
• Business Bay
• Dubailand Residence Complex

These five areas in Dubai real estate are also predicted to be where the majority of apartment completions will occur in the short-term.

Upcoming Supply and Segment Imbalance

There is a discrepancy of units being supplied to the market compared to their demand levels. In five communities, over 70% of all (units being) constructed units will be in the form of either a studio or one-bedroom apartment. As a whole, apartments are the dominant form of new housing supply.

Some of the contributing factors affecting supply include:

• An oversupply of studio and one-bedroom units
• Apartment-centric development pipelines
• Slower absorption rates for larger sized units
• Increased competition among landlords

The result of this supply and demand imbalance in Dubai real estate investment will be extended vacancy periods, longer rental incentive periods as well as pressure on pricing due to multiple similar projects being completed within a short period of time.

Impact on Larger Units and Alternative Segments

Contrary to this trend, villas, townhouses & larger apartments are showing more resilience to the current & future general economic downturns. The supply in these areas has increased at a moderate rate compared to all other property types, while there continues to be steady demand for families & those looking to rent long-term.

Therefore, property investment in Dubai as well as investment strategies in real estate should increasingly place an emphasis on low-density property formats & communities with limited future supply of multi-family properties. Most of the new inventory being developed today will consist of either studio apartments or 1-bedroom units which are expected to comprise a significant portion of the inventory of Studio apartments for sale in Dubai in these areas.

Adjustments in Rental Market Dynamics

There has been a recent slowdown in rental prices for apartment rentals, and growth has slowed down in areas with high levels of new construction due to the amount of delivery scheduled directly or indirectly to the rental market.
If you are the landlord of a small apartment, particularly a studio, you may have to adjust your expectations regarding rental prices as more and more tenants will be choosing from an expanding number of rental properties.

Conversely, as the inventory of other apartment types tightens, this will support stability in the overall rental market and help create a greater degree of confidence in long-term real estate investment in Dubai.

Potential Impacts on Buyers & Renters

If you are a buyer of property for sale in Dubai, you may find that larger homes may hold up well in the long run compared to smaller homes, but smaller unit prices will be better compared to larger homes in overbuilt areas.
If you are a renter looking for properties for rent in Dubai, you may have greater negotiating power for areas with new studio and one-bedroom availability.

Prediction of Price & Rent Movement

Even though the Dubai real estate market continues to be extremely strong based on population growth and economic growth; some localized areas have too much supply of studio and one-bedroom rentals, so this could negatively impact future prices but not necessarily rental prices of larger homes in lower-density areas.