Dubai rents resilient to sharp corrections

Dubai rents resilient to sharp correctionsImage Credit: Supplied

After steep double-digit increases in each of the last three years, average apartment rents in Dubai may have dipped — but only by a marginal 0.3 per cent a month in the first-half of the year.

This contrasts quite markedly with the rental gains of 17 per cent, 26 per cent and 15 per cent annually during 2012-14, according to a new report from Core Savills, the consultancy, which adds that the 'rises over recent years have made life difficult for millions'.

The corresponding increase in villa rentals during 2012-14 were 18 per cent, 17 per cent and 9 per cent a year. This also corresponded to the period when the rental cap in Dubai was rolled back and the Dubai Land Department sponsored 'rental index' came into effect.

The rental increases are patently ''unsustainable'' and has made Dubai 'suddenly much more expensive to live in and a far less attractive place for expats to move to', the report notes. 'Many renters have been forced to relocate to less desirable locations that are in mid-construction phases which damages the lifestyle factor that attracts so many foreigners to Dubai's shores.'

For the city's residents who have to make do with rented premises, the situation is all the more galling because rents have not gone the way that property values — and sales transactions — have in the first-half. So, the market is seeing a situation of relative stability — even further hikes — on rentals, while sales value and volumes continue their decline.

The ''contradiction is due to the frictions that exist in the rental market and not seen in the sales'', said a top official at Core Savills.

''First, many landlords in Dubai fail to recognise that it's better to reduce the rent slightly rather than lose a tenant and leave a property vacant for a few months,'' said David Godchaux, CEO. ''This ''even though the associated loss of income is greater than any marginal decrease in rent.

''We find many landlords will insist on maintaining a certain price point to rent out … as a way of persuading tenants to continue paying the same rate while property values decline.''

This was landlords ''enter into a sort of moral contract with their tenant by promising not to increase rents as the market picks up.''

With landlords refusing to give way to tenant demands, the latter, barring few exceptions, have to opt for new premises. That, in itself, can prove quite a sizeable cost burden, as the ''3-5 per cent possible saving in rent does not cover the cost of moving to a new place, paying (the) agency fees and reconnecting water, electricity and internet services, etc,'' said Godchaux.

''At present the market isn't dropping massively — so saving 3-5 per cent is not worth it. We do not expect a long or sharp overall decline.''

Any tenant wishing to make the switch to an owned property should keep a few pointers in mind. ''I think it's certainly the right time in the next 12-18 months — because prices are mechanically softening after a sharp rise, and because this is a good point to enter the market as we are still optimistic mid to long term.

''We won't see massive shift in this regard because memories of the 2008 crash are still fresh for many, and there isn't that level of confidence out there to take the plunge and buy.

''A lot of people think the Dubai real estate market may be back at the pre-2008 scenario... but we aren't and we expect prices to stop declining in 2016.

''We expect the market to return to growth in late 2016 or early 2017 as Dubai gears up for Expo 2020.''

Find out if landlords in Dubai drawing more flak than they deserve

Source: Manoj Nair, Associate Editor,


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