Supply mismatch is not helping Dubai's rentals

Supply mismatch is not helping Dubai's rentalsImage Credit: Supplied

Chances of a major drop in Dubai's home rentals are receding by the quarter — much of the new stock coming through is catering to the premium end of the rental market. And even if there is some softening in their asking rates, these properties are still way out of reach for budget-conscious tenants.

Phidar Advisory in its latest update on Dubai property trends offers numbers that show why. Two-thirds of the 6,000 apartments and 1,500 town houses and villas scheduled for completion during the second-half of this year are already available for leasing. Of this, villas and town houses make up a fifth, and carry rents of a minimum of Dh120,000 a year. These are generally affordable for households earning at least Dh360,000 per year, according to the consultancy.

But a sizeable number command Dh200,000 and over, and only accessible for those earning at least Dh500,000 a year and much more. ''Thus, the new supply delivered is not the supply that is needed,'' states the report.

There are other reasons why Dubai's home rental dynamics are not in favour of tenants. Or even if they are, not to the extent enjoyed by someone in the market trying to buy a home now. ''There is a mismatch between the supply being delivered and new demand,'' said Jesse Downs, Managing Director of Phidar. ''Indicators suggest companies are hiring for junior and mid-level positions, but much of the new supply handed over in the second half of 2016 is positioned for mid-high to high income households.''

The latest supply data supports this contention. Of the overall anticipated supply of 17,000 to 20,000 units this year, around 52 per cent are in locations ''typically oriented to mid-high to high income households,'' states the report. ''The studios and one-bedroom apartments in these locations may be affordable to some of the junior and/or mid-level staff hired in the coming months, depending on the industry.

''Yet, these new hires are unlikely to be able to afford the larger units, which typically rent for a minimum of Dh100,000 per year.''

This will place Dubai's landlords and tenants between that proverbial rock and a hard place. Landlords with high-end rental properties in their portfolio are not seeing sufficient demand and have to make do with keeping these vacant for a longer time. That is, unless they are willing to slash rents.

And in the mid-market space, limited new supply is squeezing tenants by forcing them to shell out more on their annual rents.

''Weak demand combined with moderate supply growth will lead to further rent and price atrophy, likely into and possibly through 2017,'' said Downs.

So, when will new supply start to decisively sway matters in the rental space? It could be that 2017 might offer up more stock than has been the norm this year and the last. But all such expectations need to be tempered with reality.

''Construction rarely goes as planned, so schedules are often extended and the supply handed over is often nominally lower than original projections,'' Phidar states. ''During market lulls, construction pace usually slows, further reducing stock completed. However, as the stock gets delayed, more deliveries are pushed from 2016 into 2017.

''The three- to four-year delay in development cycles creates challenges — homes completed today are often a response to the market conditions two to four years ago. In the current cycle, the recovery started in 2012 and gained the most ground in 2013, sparking a flurry of new projects.

''The downturn started in mid-2014 and slowed construction schedules over the past two years. Consequently, 2017 is possibly a period of more significant supply growth than 2015 and 2016, even though the actualised new stock will be less 30,000 units.''

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Source: Manoj Nair, Associate Editor, gulfnews.comGN

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