Dubai rental softness may hit northern emirates

If more new homes get delivered in Dubai — that’s still a big ‘if’ going by the records of recent years — this could have a significant impact on rentals not just within the city, but in the northern emirates as well. But for that to happen, nearly all of the 20,000 new apartments expected to be delivered this year in Dubai should make the finish-line.

The Asteco report estimates that across Dubai, property values were down 11 per cent during 2015.

If so, “rental rates are likely to come under pressure over the course of not only 2016, but also 2017 onwards,” states the latest market update issued by Asteco.

“Consequently, this could affect rental rates in the northern emirates as any prolonged declines in Dubai, particularly in rental values, typically affect Sharjah and Ajman.

“This drop in rates will be beneficial to tenants who will be able to negotiate better terms upon contract renewal. In addition, the reduction in rates could also assist in unlocking demand from some of the many households sharing housing accommodation who could now potentially afford their own.”

In Asteco’s estimates, rentals across Dubai fell by a marginal 1 per cent, with the upscale locations showing a marked dip.

In comparison, official rental index suggests the dips were more in the 3-5 per cent range across the board.

Abu Dhabi the exception

Abu Dhabi remains the exception to the rule.

“Abu Dhabi has more of a limited amount of supply in the pipeline due for completion during 2016,” the report adds. “As a result, vacancy rates are likely to remain low despite a potential reduction in demand, implying stability and potential growth, for both sales prices and rental rates.”

Will developers start getting generous with their delivery schedules in Dubai and elsewhere? Even last year, there were many who could not see this through, forcing residents to make do with high demand and limited supply.

“Despite the numerous property launches in Dubai over the past few years, it is likely that a substantial proportion of these projects will be curtailed due to market conditions, which will allow stock, currently under construction and due for delivery in the next two to three years, to be absorbed,” the Asteco report notes.

Where developers were able to stick with their promises on delivery, end-users were willing to clamber on-board. In particular, they were willing to put their money for those properties that offer a modicum of space tied to a reasonable pricing.

“New communities such as Mudon and Arabian Ranches Phase 2 saw improved levels of activity, offering better-priced yet good quality alternatives to some of the more established areas,” the report notes.

New supplies are also having an impact on values of existing properties.

“A substantial amount of villas being handed over in Jumeirah Park, Mudon and Arabian Ranches Phase 2... resulted in a sharp correction as Arabian Ranches and Jumeirah Park both recorded 12 per cent decline since [the fourth quarter of] 2014. The rate of decline, however, slowed down during the last quarter of 2015 as occupancy levels improved, and some of the newly handed over communities even witnessed modest rent increases.”

Even premium villa-dominated neighbourhoods such as Jumeirah and Umm Suqeim also “suffered” from new supply, “recording drops of over 10 per cent over the year as many of the tenants left the country or had reduced housing allowances,” the report adds.

“In addition, substantial new supply in the area has been delivered, forcing property owners, especially of older villas, to become increasingly competitive on pricing.”

Source: Manoj Nair, Associate Editor,


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