Dubai's residents go where affordable leads them

Dubai's residents go where affordable leads themImage Credit: Supplied

''Going affordable'' — that's the theme Dubai's real estate market is taking to heart. It's also showing up quite clearly in the residential rental space as well.

With concerns mounting over their employment situations, many residents are choosing to cut down on their rental outgo by any means possible. Others have responded by sending families home and opting to go for an address at a studio or one-bedroom apartment.

This rush to affordable locations and properties should continue until the local economy starts showing signs of momentum picking up through the Expo 2020 build out. For now, ''What is interesting to note in Dubai is the decision of families to downsize and even send spouses and children home in an effort to save money,'' said John Stevens, managing director at Asteco.

''We are seeing signs of this in Abu Dhabi, with a migration or downsizing mainly from high-end large units to more affordable developments; which has led to a rise in vacancy rates for larger units and which could prompt an increase in rental rates for smaller units in more desirable buildings.''

Therein lies the problem — there isn't enough supply — either freshly delivered or about to be — of mid-market rental units coming through. Dubai added only 2,000 new ''mid-level and affordable apartments'', with affordable developments such as the Siraj Tower at Arjan (Dubailand) and 400 units in Dubai Silicon Oasis; the mid-range Ajmal Sarah Tower and Dubai Sports City, as well as Canal Residence West, according to Asteco.

And when there is so much unmet demand for one particular category, the chances are that rentals are more than likely to gain for mid-market properties. To an extent this is already the case. Mid-tier locations — freehold and non-freehold — have not experienced the rental softening that the upscale locations in the city have gone through for over 12 months now. In fact, locations such as Discovery Gardens, Jumeirah Village and the traditional residential bastions of Bur Dubai and Al Ghusais are seeing landlord demands for rental increases during renewals.

''From a rentals perspective, demand for studio, one- and affordable two-bedroom units is likely to remain strong, with a potential increase in rates in some areas as occupancy levels improve,'' said Stevens. If their household finances allow it, now could be the time for tenants to consider migrating to property ownership status. It could be a reason why communities such as Jumeirah Village are able to call in ''significant interest'' from both end users and investors. Buyers recognise the ''potential of the community from a locational point of view in comparison to newer projects launched south of Mohammad Bin Zayed Road'', states the Asteco report.

Developers with soon-to-be-complete mid-priced buildings should take note. If they offer the right incentives, they can induce many a tenant to seriously give buying a thought. Interest rates continue to be on the lower side, and even if the US Federal Reserve were to raise base rates, the likely impact on mortgage rates here would still be marginal.

There could even be bargains to be had on the selling price. For the overall freehold market in Dubai, ''We expect to see further marginal declines in values as the market looks likely to bottom out by year end with, at most, a 5 per cent decline,'' said Stevens. ''This could be offset by potentially increased transaction volumes as lower prices unlock demand and stimulate renewed interest from single-unit buyers for soon-to-be-completed buildings.''

In Abu Dhabi, the pressure is all at the high-end

Extremely limited new and immediate supply in Abu Dhabi is ensuring that the rental decline does not turn into a free fall. Only 800 apartments were added during the first-half of the year, including the Wave Tower on Reem Island. The overall rental drop has been confined to 3 per cent, according to Asteco.

Also, transaction levels remain muted with ''asking rates still relatively high in comparison to other emirates [nominal 2 per cent decline recorded] despite owners putting units back onto the market'', it adds. ''The ongoing lack of affordable units [is] stymying prospective investors with limited budgets.''

''We are still seeing good levels of demand for affordable products like the Al Ghadeer and Al Reef town houses, with no decline in sales prices, which confirms the appeal, and shortage, of this kind of product in the market,'' said John Stevens, managing director at Asteco.

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Source: Manoj Nair, Associate Editor, gulfnews.comGN


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