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With property sales and value growth taking a dip, the rise and rise in rental charges is emerging as the key driver in Dubai's residential property market. In fact, the rental growth in Dubai easily outstripped that in London and Hong Kong during the first three months of the year, according to a new report from Knight Frank.
'In Dubai, prime rents continue to outpace wage inflation; this is raising concerns about affordability', the consultancy states in the report. Ideally, this should have been the catalyst to get residents to think seriously about buying rather than remained in rented accommodation.
That the shift is yet to happen in sufficient numbers is what is holding back the property market from realising its full potential. Market feedback suggests that mortgage lending to new buyers remains tight. What compounds the situation for both prospective buyers and lenders is that interest rates remain anchored to historic lows.
''There have been a lot more interest and new promotions from the banks in the home financing area in the last six months,'' said Ambareen Musa, CEO of Souqalmal.com, a financial planning portal. ''We have seen a threefold growth in visits to our home loans section just in the last month.
''Interestingly enough, based on numbers released, transactions have not grown as much. In terms of rates, Souqalmal.com has not seen any significant decrease, except by a few local banks. But we have seen a lot more activity around promoting their home finance products.''
At a broader level, trends indicate a possible further firming up in rentals across major cities, the Knight Frank report adds. 'The withdrawal of stimulus (by central banks worldwide), along with the expected rise in interest rates in influential economies such as the US and the UK, is likely to boost rental demand as mortgage costs rise over time', it states.
In the 12 months to mid-March this year, home rents in Dubai were up an average of 16 per cent plus, according to Knight Frank. In comparison, London and Hong saw dips of 2 and 6.3 per cent respectively during the same period.
But the situation on the ground in Dubai on rental surges could be even higher. Certain locations and buildings have seen spikes well over the 20 per cent level, cutting deep into the budgets of residents. For many of them, even a relocation comes at a higher cost as potential locations elsewhere in Dubai or Sharjah too have recorded the pull of higher rental demands. Also, quite unfortunately, some of the sharpest increases have been in mid-tier locations.
Source: Manoj Nair, Associate Editor, gulfnews.com