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Tenants may well be welcoming predictions of rents softening this year, with many looking forward to more suitable homes without moving further afield.
''Affordability has certainly reached a saturation point, a period of calm in terms of rents and capital growth is good for Dubai to not lose its business appeal,'' says Richard Paul, Director of Residential Valuation at Cluttons. He says more supply will come into the market this year, continuing the trend in 2015.
''Rents will soften, maybe by around 5 per cent. It isn't much but it gives people more options. It's a renter's market, which means better prices and [easier rental terms], or landlords risk leaving their property vacant,'' adds Paul.
Clutton's winter report detected a 3.2 per cent rental decline overall in the freehold market. Minimal declines were reported in prime areas towards the end of last year, while the outskirts went the opposite direction due to a general flight to affordability.
''The outskirts saw the highest rental inflation because they are cheaper to start with,'' says Matthew Green, Head of Research UAE at CBRE Middle East.
He says masterplan developments thought of as affordable such as Dubai Sports City, Jumeirah Village Circle and Dubai Investments Park were becoming increasingly expensive because there wasn't enough supply.
''If there had been enough supply then rents would have come down more. The key challenge is to bring enough supply online,'' says Green. Villas and town houses have been an exception, particularly at the three bedroom level. Rents fell by up to 6 per cent due to larger supplies.
Flight to affordability
CBRE and Cluttons expect the flight to affordability to continue throughout the year. ''If your household income is Dh10,000 per month you'll have to spend 35 per cent on rent right now, and it doesn't buy you a lot in Dubai,'' says Green. Tenants in this income bracket can find accommodations no larger than a studio, unless they move to Sharjah.
''Around that income mark the only availability is in the non-freehold areas, such as Deira,'' says Paul, although he reckons there could be more options in the future, particularly in new master developments such as Dubai South. ''The developers have realised there is a need in this target market, offering 8 percent rental returns in some cases.''
For households earning between Dh15,000 and Dh20,000 per month, there are a lot more options, especially for small families, albeit in the outlying areas.
''The lack [of affordable options] has forced a lot of residents to go to the border of Dubai and Sharjah, where you do find affordability and can get larger apartment units. Once your household income gets up to Dh20,000 the Dubai market becomes affordable,'' explains Green.
Paul advises residents earning Dh15,000 to look in Dubailand, Dubai Silicon Oasis, Jumeirah Lakes Towers and Jumeirah Village, apart from Deira and Bur Dubai.
''But still we're talking only studios or one-bedroom apartments,'' he adds.
Having said that, he does recommend shopping around as a one-bedroom unit could be even found for Dh60,000 in a favourite community, like The Greens. He also reckons that larger units could be found for around Dh90,000 in Jumeirah Village Circle (JVC), Dubai Marina and even on The Palm as some agents would rather lease a property quickly and get a commission rather than finding a good deal. ''So it's a matter of not believing everything, but insist on negotiating,'' says Paul.
The affordability gap in the emirate has been intensely studied by Cluttons, which estimates the average household income in Dubai to be around Dh16,500. ''It just highlights the disparity between what a large percentage of the population in Dubai can afford and what's out there for them to rent,'' says Paul. ''The general rule is that a household shouldn't spend more than 30-35 per cent of their income on rent.''
Sticking to this rule of thumb, a home shouldn't cost more than Dh60,000-Dh70,000 a year, restricting lower-income households to studios and one-bedroom apartments, and perhaps a few two-bedroom options when stretching the budget.
''New communities do help. Basically from the Dh60,000 to Dh72,000 mark, there are more options in this section of the market,'' says Paul.
Singles versus families
Households with a combined salary of around Dh20,000 would have to spend up to 50 per cent of their income to afford a one bed town house in Jumeirah Village Triangle or a three bedroom apartment in Al Badrah waterfront. This indicates that some tenants would need to take out loans to finance their lifestyles.
''People do finance their rents with [a loan] but not as much as in 2008. I would hope people have their finances in better order and can find more affordable, nice places to live,'' says Paul.
Those in the Dh30,000 income group would be able to rent a three-bedroom town house in newer developments more comfortably, although established communities are still out of reach.
''There are few three bedders at around Dh120,000 per year, but they will come within a couple of years in Mira, Jumeirah Park, Al Furjan and Green Community, as well as Mudon and Town Square,'' says Paul.
The sustain this market segment, Paul says ''we need owner-occupiers who will stay here long term, and who could lease [their properties] as well when they're not here, maybe making a rental yield profit of 5 per cent and a few per cent of capital growth over the years. Those are the backbone of a real estate market.''
Single professionals have difficulties finding a suitable place to live. For those with a salary of Dh15,000, there are plenty of options in the outskirts, but renting a place in city centre would mean shelling out 40-50 per cent of one's income or living in a shared accommodation.
''Single professionals still have to share in Dubai to afford the location they would like, such as the Dubai Marina or Downtown Dubai,'' says Paul. ''However, this is true the world over as very few can afford their own place, unless they move out from the centre.''
Dubai's Real Estate Regulatory Agency has recently updated its rental index for 2016, revealing a widespread drop in rates by up to 10 per cent in certain areas and types of property, while others remained stable. Rera has said that it would end quarterly updates of the rental index, raising questions about its accuracy.
''The market can be volatile at times, so it would probably help if you had more frequency to keep it current,'' says Green. ''At the moment it's not moving so quickly so maybe they don't see the demand, and change frequency again in the future.''
The rental index is a handy tool for tenants to determine the market value of advertised properties. For example, properties in Motor City have advertised prices ranging from Dh60,000 to Dh70,000. In contrast, the rent calculator says prices there range from Dh50,000-Dh60,000, indicating that landlords' expectations are still out of whack with government-mandated rates.
''There's a lot of smoke and mirrors in the rental space. Either the landlord demands advertising the property too high, or [properties] are advertised too low with agents fishing for calls. The difference [between the asking price and the market price] can be as much as 20-30 per cent, so it becomes difficult to analyse,'' says Paul.
The rent calculator can help save the day in terms of properties boxed into a clear range. ''On tenanted properties landlords in general will consult the rent calculator,'' says Paul. ''However, in many cases new landlords have realised that the calculator doesn't allow for the nuances of each individual property and its location, and the range in some cases is simply too wide, such as in the case with three-bedders in the Arabian Ranches.''
He reckons the rent calculator would need to improve its variables, hence the decision to update it once a year instead of quarterly. ''I believe they're aware of its imperfections and are working on the variables,'' says Paul.
In any case, he notes that rental trends don't reveal everything about the market. ''The market should look at each property individually. They are all different.''
Where you can find homes that fit your budget (based on advertised prices)
Household income: Dh10,000
• Studios in Deira, Al Qusais, Al Muhaisnah, Dubai Sports City, IMPZ, International City, Skycourts Towers
• One- and two-bedders in Sharjah and Ajman
Household income: Dh15,000
• Studios and one-bedders in Deira, Al Qusais, Al Muhaisnah, Karama, Bur Dubai, Dubai Sports City, IMPZ, International City, Dubai Silicon Oasis, Al Furjan, Al Warq'a, Discovery Gardens, Downtown Jebel Ali, Jumeirah Village Circle, Ras Al Khor, Majan, Arjan, Skycourts, Queue Point, Remraam, Academic City, Dubai Investments Park, Green Community, Dubai Marina, Dubai Waterfront, Dubai Motor City, The Greens, Jumeirah, Al Sufouh, JLT, Mirdif and Al Barsha.
• Two-bedders in Al Nahda and Remraam.
Household income: Dh20,000
• Studios and one-bedders in all the areas mentioned above, plus Shaikh Zayed Road, Business Bay, Downtown Burj Khalifa and Jumeirah Village Triangle.
• Two-bedders in Al Nahda, Al Qusais, Al Muhaisnah, Bur Dubai, Al Warqa'a, Al Warsan, Dubai Waterfront, Dubai Sports City, IMPZ, International City, Remraam, JVC, Mirdif, Skycourts, Motor City and Tecom.
• Three-bedders in Al Muhaisnah.
Household income: Dh25,000-Dh30,000
• Studios and one-bedders in all the mentioned above, plus Al Satwa, Al Sufouh, Jumeirah, Al Furjan, DIFC, Dubai Festival City, The Views and The Palm Jumeirah.
• Two-bedders in Al Nahda, Al Qusais, Al Muhaisnah, Bur Dubai, Deira, Karama, Al Warqa'a, Al Warsan, Dubai Waterfront, Dubai Sports City, IMPZ, International City, Remraam, Arjan, Majan, Skycourts and vicinity, JVC, Mirdif, Skycourts, Al Barsha, Discovery Gardens, Downtown Jebel Ali, DIP, Dubai Marina, DSO, Jumeirah Village Circle and Triangle, Sheikh Zayed Road and Tecom.
• Two-bedders in Badrah Jebel Ali and Al Barsha
• Three-bedders in Al Muhaisnah, Al Nahda, Al Qusais, Downtown Jebel Ali, Dubai Waterfront, IMPZ, Jebel Ali, JLT and Queue Point
• Three-bedders in Sahara Meadows, Dubai Industrial City.
Source: Nicole Walter, Special to Property Weekly