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Rental demands seem to have subsided, or at least they have in some locations of Dubai, but residents will need to keep a close eye out for further pressures on the overall cost of living.
''As government charges increase further in 2015, we remain wary of pressures on the cost of living as inflation registered 4 per cent at the end of November, on the back of increasing housing and utility costs'', according to a new report on Dubai's residential market trends during the fourth quarter of 2014.
If those increases do come through and prove substantial, it could have a telling impact on consumer activity in other spheres. In simple terms, there will be less for Dubai's residents to indulge in discretionary spending on the latest tech gadget or on more frequent outings at a fancy restaurant.
What's happening with crude prices also need close watching, though Dubai is better insulated given its low dependence on oil receipts. ''While cheaper oil prices are likely to dampen investment sentiment in the short term, Dubai's success at diversifying its economy and expanding its global reach makes it less vulnerable to oil price fluctuations,'' said Craig Plumb, Head of Research at JLL Mena.
''With the government's 2015 budget announcement, which saw planned spending and revenues increase 9 per cent and 11 per cent respectively, the next 12 months are expected to see a boost in business activity.'' (But ''a major negative component of the 2015 budget for real estate is the proposed 15 per cent reduction in infrastructure spending compared to 2014'', JLL adds.)
Full year rentals
Apartment and villa rents during the fourth quarter remained flat, based on JLL's findings, which also found that for the full year rental increases were 15 per cent compared with 18 per cent the year before that.
A further 25,000 homes are expected to be added to Dubai's existing base of 377,000 homes this year. There could be another 16,000 units through 2016. (But, Craig Plumb, Head of Research at JLL Mena, says: ''In reality, we remain cautious of the delivery of some of these projects within the time frame.'') In Abu Dhabi, meanwhile, rental gains during the fourth quarter were kept to 5 per cent and lower depending on the location. However, for properties coming with water views or top-notch service features, rentals growth would more likely be in the 7.5 per cent to 10 per cent range, according to the ADIB (Abu Dhabi Islamic Bank) Rental Index.
''The current market is effectively a three-tier market,'' said Paul Maisfield, chief executive of MPM< the real estate arm of ADIB. ''Mid-tier properties are seeing a stability in rents with an average 5 per cent increase, reflecting the fact there is a ready supply of such properties and thus landlords are mindful not to push rents too high and risk occupancy levels falling.''
Abu Dhabi demand continues
Growth in apartment values in Abu Dhabi recorded ''strong capital appreciation'' during 2014, according to MPM Properties. These range from 11 per cent to 35 per cent. Villa values also experienced strong growth, ranging from 5 per cent to 30 per cent. 'The Abu Dhabi market continues to be dominated by individual investors, with sale prices increasing faster than rents, eroding yields which have dampened investor demand', according to a statement issued by MPM Properties. 'This trend will continue until sellers agree lower prices or rents rise to help investors achieve net yields within a range of 5.5-6 per cent'. During the year, Abu Dhabi saw the launch of the first residential off-plan projects for over six years, with Aldar launching three valued at a combined Dh5 billion. TDIC launched its first residential development within the Cultural District. 'All projects generated significant demand with all inventory released sold, and the expectation of new projects being launched during 2015', MPM Properties added.
Source: Manoj Nair, Associate Editor, gulfnews.com