Sale prices and rental costs for the most expensive homes in Dubai were significantly lower in the first three months of this year compared with 2016 as companies hired top-level staff at a slower rate.
Prices for apartments in Dubai’s Burj Khalifa have dropped by about a quarter on the secondary market over the past 12 months, highlighting the weakening demand for luxury property, according to a new report by the property consultancy Cluttons.
The company says that prices for units in Emaar Properties’ flagship tower dropped by 6.9 per cent between the beginning of the year and the end of March, which it said was indicative of a much broader aversion to luxury homes.
In the first quarter, prices for Hattan Villas at The Lakes have dropped by 13.5 per cent year-on-year and the Hattan Villas at Arabian Ranches have dropped by 12.6 per cent. Apartment prices on the Palm Jumeirah have fallen by 11 per cent.
The company said that the market softness stems from a lack of demand as a result of underlying affordability issues and continued uncertainty over the health of the global economy.
"The rate of creation of senior-level executive positions has fallen and this is reflected in the lower level of enquiries and budgets we are recording," said Faisal Durrani, Cluttons’ head of research.
"The redundancy programmes in the city’s finance and banking sector and oil and gas sector have all but run their course, but the weak global outlook is putting other key sectors under pressure, including the hospitality and aviation sectors, both of which are long-standing and historic cornerstones of economic growth. 
Overall, however, the firm said that the rate of price declines was slowing. Prices fell by 0.9 per cent during the first quarter of this year, bringing the year-on-year decline to 7.8 per cent – a slight improvement on the 8.8 per cent falls the firm reported during the 2016 calendar year.
It suggests that the market will bottom out by the end of the year, although it said there are a number of factors that are likely to keep up the downward pressure on prices for now, including changing demands for high-level staff, the introduction of value added tax and concerns over increasing supply, which is affecting rents.
For instance, completions of the Mira town houses and villas at Emaar Properties’ Reem Community are affecting the more mature Arabian Ranches community next door.
About 1,200 units have been handed over at Mira over the past six months. These are generally renting for Dh120,000 to Dh140,000 a year, compared with typical rents of Dh170,000 to Dh220,000 at Arabian Ranches.
Cluttons said that tenants were "aware of the burgeoning rental supply levels and are taking advantage of conditions by seeking out the best perceived value for money".
Rival property broker CBRE also reported on Sunday that house prices and rents in Dubai both fell by about 1 per cent during the first three months of the year.
CBRE reported that a rush from Dubai developers to build thousands of new apartments before the start of Expo 2020 was pushing up the number of new homes due to be delivered in 2017 and 2018 to "well above" the five-year average of 15,000. It said it expected these numbers to continue to rise in the short to medium term as new master plans come on stream.
CBRE said fierce competition to sell off-plan apartments meant developers were building smaller units so that they could offer cheaper deals and offering attractive payment plans where buyers were only required to pay most of the costs after the property was built.
"Amid a flurry of off-plan launches the competition to attract investors is also rising, meaning developers are having to become more creative in order to sustain desired levels of sales velocity," said Simon Townsend, a director at CBRE.

Source: The National