Property Weekly Opinion: Why the rental market continues to hold strong

OpinionRanju Kapoor

The economic fundamentals of Dubai have a key role in defining the rental market dynamics. Not surprisingly, rents in Dubai have been an indicator of the economy and the level of employment.

Low unemployment, ease of setting up a new business and the city’s reputation as a top business and tourism destination serve as magnets, drawing new residents and business investments, which further increase demand for housing. Therefore, the ongoing debate about why rents in the city are not falling, despite the marginal softening of property prices, has to be evaluated against the emirate’s broader economic perspective.

Today, the rental market dynamics are firmly regulated by the authorities. With a rental index in place, unreasonable increase in rents can be challenged by tenants and most often win favourable outcomes.

Rental landscape
The rental market of Dubai operates in clearly defined pockets. At one end of the spectrum are the master-planned communities where long-term investors have bought in with eyes on rental yield. It is not uncommon for investors to pay off their mortgages through rental income alone. As these communities are very well established and are regarded as prestige addresses that offer effortless access to all lifestyle amenities, demand for homes there continues to be high, as the enquiry data of Hamptons International proves.

This demand in the New Dubai area has been catalyzed by the evolution of business and lifestyle nerve centres such as Dubai Marina, Emirates Living, Dubai Internet City and Dubai Media City.

At the other end of the spectrum are the traditional residential zones of Dubai closer to the Creek and the Dubai International Airport, Bur Dubai, Karama, Deira, Al Qusais and the fast-growing Mirdif area. In these areas the supply of leasable homes is managed by landlords, who own whole buildings, and their real estate agencies. Demand has held steady even during the crisis years. These locations also benefit significantly from the connectivity offered by the Dubai Metro.

These well-established residential zones still continue to gain active interest from every section of residents — be they single professionals and smaller or larger families. The basic reasons are their central location, ease of access to all amenities often within walking distance, connectivity and the very fact that many residents have been staying there for years.

Residents have no other option than to move to new localities or to other emirates if rents keep increasing. But most are hesitant to shift simply because of the hassle involved and the associated expenses, including commissions, security deposits and moving charges. Driven by demand, rental rates in these areas have gained and remained steady over the past two years.

Expo 2020 effect
The ongoing preparation for the World Expo 2020 in Dubai has generated new jobs and business opportunities that will call for the services of even more professionals. This will further boost demand for homes. Dubai also enjoys a reputation as a work, live and play city. Achieving work-life balance is a very important factor when it comes to residents choosing their location of residence.

For most people, the choice of continuing to pay higher rents in their preferred localities or moving to other emirates with lower rents is decided by the amount of time that is lost being caught in traffic. They would rather pay more and enjoy a better quality of life than save money and compromise on their lifestyle.

The game changer in sustaining Dubai’s long-term rental demand and yields has been the Dubai Metro, Dubai Tram and other major road projects. The increase in connectivity leads to decrease in time spent commuting.

Luxury and affordable
One should not equate the rental patterns of the residential sector with that of the luxury sector. It is often observed that high-net-worth individuals are not overtly concerned about the rental yields from their property investment.

They look more into capital appreciation or even disregard it as they might regard luxury properties as trophy assets. This particular type of property typically has lower rental yields, but is not of a major impact to the overall rental market.

However, one possible game changer is the evolution of affordable housing projects as they can potentially affect the rental yields of the entire rental market if larger supply is delivered in the near future.

Currently, only a few active developers meet the demand from the mid-income segment by targeting people in the Dh15,000-Dh20,000 monthly income bracket.

Many projects are expected to be launched in the future, targeting people in the expanded monthly income bracket of Dh10,000-Dh20,000. This group forms the largest single market segment in the emirate.

While some people in the mid-income group will have the opportunity to benefit from easier home mortgage and shift their lifestyle from a rental model to owned homes in these developments, the largest proportion, for a number of reasons, will continue to prefer to rent property.

The rental market of Dubai looks set to stay strong. There will always be fluctuations, but with the emirate’s economy set to achieve positive growth, homeowners and landlords can enjoy good rental yields and high occupancy rates in the short to medium term.

Source: Ranju Kapoor, Special to Property Weekly
The author is General Manager of Hamptons International. The views expressed in this article are his own

Al Nisr Publishing accepts no liability for the views or opinions expressed in this column, or for the consequences of any actions taken on the basis of the information provided


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