Average sales prices and rents softened across most communities in Dubai in Q2 2019. However, over the 12-month period from Q2 2018, the average rate of price decline slowed. The price gap between apartments and villas/townhouses narrowed markedly. Average sales prices declined more than rents in Q2 2019, as was the case in the previous quarter. The average trading price for villas/townhouses in Dubai declined from AED 2.4 million at the end of Q2 2018 to AED 1.82 million in Q2 2019, representing a drop of 24% in average prices. Apartment prices also moved towards the lower end of the range, averaging at AED 1.3 million in Q2 2019 from AED 1.4 million in Q1 2019. Developers are aiming to attract investors through competitive value offerings and marketing campaigns. For instance, many developers are offering payment plans where a significant percentage of the purchase price is paid only upon completion and, in some cases, post-completion.

The retail sector in Dubai remained subdued in 2018, with rental declines prominent throughout Dubai, particularly in the case of line retail shops in Bur Dubai, Deira and other secondary locations registering higher vacancy levels. Meanwhile, vacancy levels in super-regional and regional malls as of Q4 2018 remained relatively stable at 9%. Developers handled this downward pressure by becoming increasingly flexible on lease terms and offering incentives to retain existing tenants and new entrants. The unit size requirements from retailers continued to decrease, with more than 18% of the total enquires over 2018 being for space between 1,000 and 5,000 sq ft. Reduced demand from domestic consumers as a result of rising living costs affected the sales of luxury brands more than affordable brands over the year.

New Government initiatives to boost real estate demand. Building upon the visa reforms launched in late 2018, the government has started giving out long term residency permits called “Golden Card” in 2019. This scheme aims to provide long term residency for investors and for exceptional workers in the fields of health, engineering, science and art. The impact of these various initiatives on the real estate market area hard to quantify as the exact conditions for the visas are yet to be made public. While positive, their impact is likely to be limited. Until Q2 around 400 golden cards have been issued under the regulation and there is a target of 6,800 to be issued by the end of the year. Another new regulation that could have a bigger impact is the issuing of long term residency permits for executive directors earning a monthly salary of over AED 30,000. The impact of this initiative will clearly depend on how many expatriates qualify as ‘executive directors’. All the new initiatives launched to date aim to boost demand in the real estate market, with no plans to regulate or more tightly control the growing future supply. Such moves can be expected if the demand side initiatives do not prove sufficient to prevent a further softening in real estate prices and performance.

Business growth and its resulting impact on jobs remains a key determinant on housing demand in Dubai. This will continue to play a crucial role in demand-supply dynamics during 2019, especially in maintaining occupancy levels in old communities as new supply is added.

The United Arab Emirates’ GDP increased by 0.8% in 2017, down from 3.0% in 2016. Over the course of 2018, the Central Bank of the UAE’s Overall Augmented Economic Composite Indicator, has shown that GDP growth has strengthened throughout the year on the back on higher oil prices, higher levels of production in the hydrocarbon sector and a strengthening non-oil sector. This indicator estimates that the year-on-year GDP percentage change to Q3 2018 stands at 3.1%, with the overall 2018 annual growth rate expected to register at 2.8% and 4.2% in 2019(Figure 1).

Outlook for the UAE‘s GDP growth in 2018 and 2019 remains positive on the back of higher oil prices, a range of stimulus packages and easing of business regulations in both Abu Dhabi and Dubai, which are likely to support activity in both the public and private sectors. Recent forecasts from the IMF indicate global economic growth is likely to continue its steady expansion with growthforecast at 3.7% in both 2018 and 2019, down only marginally by 0.2% from the previous forecasts. Despite this slight downgrade in global growth forecasts, the IMF has revised up the UAE’s GDP growth forecasts for both 2018 and 2019 from 2.0% to 2.9% and 3.0% to 3.7% respectively. The latter estimate is materially lower than the aforementioned estimates by Central Bank of the UAE.