14 December 2014

Dubai: The Hunt for Yields

As real estate asset prices have been stabilized and they started to trend lower in certain areas, Dubai has entered the ‘new normal’ with investors beginning to hunt for stable rental returns. Historically, the greatest price appreciation has been occurred in the larger bedroom sizes (such as the three-bedrooms) giving credence to the trophy buying phenomena. However, as prices start stabilizing, a price growth compression begins within the unit sizes. In addition, we have seen a strong rally in price growth of mid-income communities in the last year compared to trophy communities, which has not been the case historically.

An analysis of the rental yields by unit sizes across monitored areas shows an inverse relationship between unit sizes and yields; the higher the unit size, the lower the yields. This trend is empirically observed in most real estate markets. Market trends recently indicate that investors’ buying pattern are changing in order to account for the larger sizes as owner-occupiers become a more prominent force in the market.

A comparison between the prices and the rental growth rates reveals that prices outperformed in the last four years by 15%, resulting in a yield compression across the board. The two-bedrooms have the least gap between the rent and the growth, whereas studios have the largest gap. This indicates that the latter appears to be out-priced sizes across the board, while both investors and developers will equally underperform serving to this area.

As the market matures, we opine that the demand for the two and three-bedroom units will relatively be larger than the historical norms, imitating trends in other developed economies. Therefore, the supply trajectory will need to adjust accordingly. In the interim period, it is likely that this segment for the market will outperform the others.

Note: Unitas is the author for these research reports and REIDIN is the sole data provider for these research reports.

To read the full report click here: http://blog.reidin.com/PublicReports/HuntforYields.pdf

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Unitas believes in in-depth planning and discipline as a mechanism to identify and exploit market discrepancy and capitalize on diversified revenue streams. The purpose of Unitas is to manage, direct, and create wealth for our clients.
 
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