Tenants playing 'stabilising role in Dubai rents'

Dubai: Dubai’s property sales values have already seen a decline in growth rates in recent months, and now it could be the turn of rentals to follow suit.

According to Cluttons, the rise in rents within the city’s freehold clusters was limited to 1.4 per cent during the second quarter, compared with the 1.5 per cent experienced in the first three months of the year. It could be that landlords are starting to find stiff resistance from tenants, existing and prospective new ones, to any sharp increases that are out of sync with prevailing rates in the neighbourhood.

When confronted with such demands, more tenants are willing to test out their side of the story with the legal redressal forums under the Dubai Land Department.

Whatever be the actual reason, “An affordability threshold has now clearly been breached in many areas,” the Cluttons report which tracks the first-half performance of the local realty market states. “This has been particularly noticeable at the upper end of the rental market with rental value growth rates slowing significantly.”

“It is important to note that although values and rents may be stabilising to an extent, they are still maintaining a positive growth trajectory and we expect this to persist,” said Steve Morgan, Chief Executive at Cluttons M.E. “Although residential values and rents in Abu Dhabi, Dubai and Sharjah are showing signs of stabilising, we expect other segments of the economy to compensate for the slower growth rates.”

Even in the mid and lower end of the rental spectrum in the freehold zones, there seems to be some semblance of a slackening in what’s being demanded. New completed residential stock in locations such as Dubai Silicon Oasis, Sports City and Motor City have played a part. “We have not seen any large supply coming up in premium locations, which, we think, will keep the rental market in these areas relatively firm in near future,” said Chandrakant Whabi, CEO of Acrohouse Properties. “Rental values appreciated by 20 per cent in the past 12 months and such riser are always followed by a period of pause, which is what we are seeing in the market. During summer, some landlords did become flexible on the price to avoid keeping the units vacant. But the drop was small and we don’t think really qualifies as a correction.”

If still bereft of choice that meet their budgets, tenants are making a return to Sharjah. “Affordable rents in Sharjah continue to entice Dubai-based employees back, while a limited supply pipeline has helped to drive up rents during the second quarter by 5.7 per cent, following the 10.8 per cent rise recorded in Q1,” the Cluttons report said. “In addition, Cluttons notes a rise in the number of businesses from Dubai seeking out bulk staff housing in the emirate.”

Even in Sharjah, tenants are willing to test out how the legal system works in handling rental disputes. “It is unsurprising that tenants are unable to easily accommodate further uplifts following last year’s 16 per cent rise,” the report said. “This has led to a rise in the number of rent disputes being lodged with Sharjah Municipality.

“As the year progresses, we expect the spike in complaints to persist, as the growth in rents is not expected to ease in the near term. Furthermore, with awareness now spreading amongst tenants, many households are likely to begin exercising their right to take objection to any proposed uplifts at the end of the three-year tenancy cycle. Despite this, our expectation is to see tenants opting to remain in their current accommodation, rather than relocating in order to contain costs, suggesting the market is likely to remain in favour of landlords in the near to medium term.”

Meanwhile, Dubai’s buy-to-let market has been experiencing a bit of an upturn. “The upgrading of Rera’s [Real Estate Regulatory Agency] Rental Indices and Ejari Tenancy Registration system earlier this year have also added to the appeal of a buy-to-let investment,” the report said. “However, the Index still has a number of methodology-linked issues that need to be addressed before it can be viewed as the city’s leading benchmark.”

See related story: Rental increases and unlawful evictions in Dubai

Source: Manoj Nair, Associate Editor, gulfnews.comGN


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