Increased supply of apartments and villas in Dubai during 2015 could result in a softening of sales prices and rents, according to a new report by Asteco.

Its Dubai Property Review 2014 Highlights & 2015 Outlook report said a further 12,000 apartments and 2,000 villas are set to come to market this year, underscoring a predicted softening of sales activity in 2015 following declining sales and rental return in the second half of 2014.

A more significant decline in rents could be seen from 2016 onwards as large numbers of real estate projects are completed, Asteco's report noted.

Asteco said rental rates rose across all three properties types in Dubai last year with apartments showing average year-on-year growth of 7 percent, 4 percent for villas and 12 percent for offices.

It added that the impact of tenants choosing to remain in existing accommodation rather than relocate resulted in a slowdown in activity.

The citywide annual average for a two-bedroom apartment in Dubai was AED122,000 at the end of the year, with an average 6 percent year-on-year rental rate increase recorded in Q4 2014, Asteco said.

"A further 12,000 apartments will be added to the city's existing inventory in 2015 as well as over 2,000 villas. This is good news for tenants across the emirate, and a more tempered rental environment is especially welcome when you consider that since 2011 apartment rents have increased by 65 percent, and villas by 55 peercent," said John Stevens, managing director, Asteco.

Villa rental rates are anticipated to remain relatively stable in the most desirable areas, with the report flagging marginal declines in less desirable areas, he said.

"Looking beyond this year, a more significant drop in rental rates could be on the cards from 2016 onwards as the large number of projects announced in 2013/14 (an estimated 12,000 to 14,000 villa units) are completed," said Stevens.

Apartment rents increased by 65 percent since 2011 but are still 25 percent lower than in 2008 with villa rates still 20 percent lower than in Q4 2008.

The report said 2014 as a year of stabilisation with sales price increases of 4 percent, 1 percent and 9 percent respectively for apartments, villas and offices.

In a year of two halves, Dubai's residential sales market recorded moderate growth in the first half of the year, with significant slowdown in market activity and sales transactions in H2 2014.

"We anticipate that the overall sales prices of units in sought-after communities are likely to see relative stability, while secondary communities, with limited facilities and amenities will be faced with declining values," said Stevens.

Underscoring reduced risk appetite, new lending regulations and fees making the purchase process more expensive, the market saw a 25 percent reduction in villa and apartment transactions in 2014 against 2013 figures. Indeed, transactions levels fell by 40 percent year-on-year in Q4 2014 alone.

Off plan sales also slowed with the added burden of newly completed products offering buyers an increasing choice of investment opportunities, Asteco said.

According to its report, sales prices for apartments ended 2014 showing a 7 percent increase compared with Q4 2013 while apartment sales prices were 6 percent higher.

With current sales rates stabilising and rents witnessing potential increases in the medium term, office yields are expected to improve in 2015, Asteco added.