Dubai’s rental declines are selective

Dubai rentalImage Credit: Supplied

Dubai: No one has a problem in agreeing that Dubai’s property sales and value gains have taken a bit of a softening in the last six months. But when it comes to the pricklier issue of whether residential rentals too had gone through a sizeable dip in the same period, the consensus seems to break down.

Market stakeholders insist that there are locations across the city where rental gains have come down, and where landlords have had to moderate their sky-high expectations to get a new tenant or retain an existing one.

Their contention is that with so much of new ready supply coming through — in locations such as Silicon Oasis and Sports City and in Jumeirah Village for those who can afford higher rental budgets — landlords cannot get away with sticking to irrational demands. (Sure, there are still those landlords who prefer to let their properties remain vacant until such time their asking rate is met. They remain a minority.) But ask the same of residents, and the chances are they would prefer to disagree quite strongly. For them, whether the demand is a 5 per cent or 10 per cent hike is not the relevant detail. What worries them is they will have to make those payments from incomes that have not seen significant upward mobility in recent years.

So, are rental declines in Dubai being very selective in where they show up? According to Ryan Mahoney, CEO of Better Homes Real Estate, the dynamics are influenced by the location … and, even more pertinently, how well that location and the ambience/infrastructure it offers is in sync with tenant expectations.

That is why “there is [still] a lot of demand for the more established areas — Downtown and Dubai Marina — because the amenities tend to be better,” said Mahoney. “And while there is new supply coming (there), many of those aren’t being completed in 2015 … so, while there is moderate supply, rents may remain stable or even increase over the course of the year.

“Where there is a lot of supply in up-and-coming areas that don’t yet have the amenities, there may be some downward pressure on rents since there is less demand. But overall it’s unlikely there will be significant rental rate rises.”


Even that would be a respite for tenants who had to submit to significant hikes at the time of their rental renewals. Sure, more landlords in Dubai are saying — formally at the very least — that they comply with the format set by the Dubai Rental Index. But it’s still a moot point whether this is being honoured in letter and spirit in practice when contracts are being negotiated.

“The Index is not being followed widely in the market … as it is most new residents are not aware of the rental laws and Index and therefore depend on agents or landlords for primary information,” said Robin Teh, Country Manager — UAE at Chestertons Mena. “Another issue is that the Index does not always include current data as it is not updated frequently.

“The other issue with the rental market is the general sense of euphoria related to Dubai. Landlords are buying into that and not willing to reduce rents, some are even keeping their properties vacant.” And in the case of luxury properties in the rental space, little has changed — their owners can ask for more and yet hope to pick up tenants who can match their expectations, Teh said.

According to MPM Properties, the realty arm of Abu Dhabi Islamic Bank, while rental values across Dubai could have grown by 10 per cent last year, in the fourth quarter it remained flat.

For those residents with plans to acquire a property, they would do well to tracking what is getting built in locations such as Sports City, Jumeirah Village Circle and Al Furjan. MPM rates these as the “new growth areas” for reasonably priced housing stock. For prospective buyers, timing their entry will hold the key.


“As supply expansion puts downward pressure, average rents will soften in most areas and, combined with upward pressure on yields, average sale prices should continue to decrease in the coming year,” said Jesse Downs, Managing Director of Phidar Advisory.

“However, this is not a cause for panic, because the overall supply-demand is still near equilibrium. Softening rents will help correct the rampant rent inflation observed over the past two years, which, ultimately, improves affordability, controls labour costs and helps facilitate economic growth.”

That is just the point. Dubai’s residential — and commercial — rental market mist not ignore the shift in sentiments in the broader economy. There are enough indications of a general tightening in the marketplace, related to how people are willing to spend their incomes other than on utilities.

If there are major changes in the cost of living, there is no way Dubai’s residents will take kindly to arbitrary increases in their rentals outgo. Dubai’s landlords should learn to ask for more only to a point.

Source: Manoj Nair, Associate Editor, gulfnews.comGN


For Rent


View more properties

For Sale


View more properties