Experts have reported a surprise fall in vacancy rates in Dubai, after an unexpected but much needed “summer rush”.
Residential vacancy rates fell 25% from 11% to 8% according to analysis of the PropertyFinder.ae website by Peter Cooper, editor of Arabian Money an independently published Dubai investment newsletter.
“It is a big shift,” said Cooper, “this is a significant change in the local property market.”
The figures come from the comparison of the number of apartments for rent and sale as a comparison to the estimated total housing stock in June and on September 7th. Arabian Money found 20,130 units for sale, and 11,797 units for rent in June, 11% of an estimated 300,000 unit-strong housing stock in Dubai.
This is compared to 14,984 units for sale and 9,634 units for rent in September, bringing vacancy down to 8% of supply.
“It is a supply squeeze and quite the opposite of what we expected,” commented Cooper who has been writing about Dubai real estate for more than a decade.
“This could be a sign that people are actually coming back after the summer, and lower rent has brought back the commuters from Sharjah and encouraged those paying high rents in Abu Dhabi in turn to commute from Dubai,” he added.
None the less, looking at Dubai’s 7,561 apartments available for rent, compared to that of Abu Dhabi with 979 apartments, this is still high, but, according to Arabian Money is a reflection of Abu Dhabi’s performance being even stronger over the summer.
“Abu Dhabi stock has got even tighter over the recent weeks. Presently, there are 1,684 units for rent and 1,680 for sale,” Cooper said.
He recalled that in June Elaine Jones, MD of Asteco, one of Dubai’s two leading local estate agencies, commented that the reported ‘new supply’ was hard to identify; her market instinct has now shown up in the hard figures.
The reason for the drop in the vacancy rate is in some doubt, is it because new supply is slow in coming on-line? Or is it because new supply is closer to the lower end of predictions (10,000) rather than the high end (30,000)?
Or yet still, “perhaps the sudden construction halt of two years ago is the explanation,” says Cooper. “Projects that stopped may still be being counted as upcoming completions. Then again many projects seem to be working on a stop-and-go programme as money comes in and that is naturally delaying completion,”
But Cooper thinks the answer is probably Dubai’s reaction to the financial crisis, allowing the housing market to sort out supply, demand and price.
“Dubai has let the market system work,” he said.
“The ‘high’ property and rental prices could not supported and were ‘allowed’ to fall to a level that the market can support, down by up to 50 per cent,” he concluded.
That final statement could be looked upon as bearish. Nobody allows prices to fall, the market demands it; no one really gets a choice in the matter. When the demand balance tips in favour of supply/buyers, price drops almost always become inevitable, it is simply a matter of time.
In this case Dubai prices fell sharply and the market would have recovered in 2009 were it a direct result of the prices falling. Rather it was a massive drop in confidence that triggered falling demand and prices, and it is the restoration of that confidence (with the big developers being bailed out for example) that has led to the rising demand.
At any rate, you can’t argue with the facts. Vacancy rates do appear to have fallen for now, whether they will rise sharply again will depend on just how much new supply is out there, and how quickly it comes online.