Find out if rents are falling in Dubai

Find out if rents are falling in DubaiImage Credit: Supplied

The latest market reports by various real estate consultancies spell relief from rent rises. In some areas, rents are even falling, but experts say this reflects a correction rather than the start of a prolonged nosedive.

According to CBRE's Q3 2014 Dubai Market View, 19,000 new residential units will come online next year in Dubai and more than 55,000 by 2017. The report states this could help keep rental values, which increased nearly 50 per cent over the past two years, in check.

The report recorded rents dropping an average of 1 per cent during the third quarter, while rates in some freehold developments in areas such as Downtown Dubai, International Media Production Zone and Tecom C dropped by up to 3 per cent.

The Palm Jumeirah, Business Bay, Jumeirah Lakes Towers, Dubai Motor City, International City and Dubailand Residences saw an average dip of 2 per cent.

During the same period, rents in leasehold areas remained stable, with some reporting an increase, according to CBRE. The trend supports the strategy of developers such as Nakheel to increase their leasing portfolios.

Although located in freehold areas, Nakheel's new residential projects — The Palm Gateway on the Palm Jumeirah and Jumeirah Heights Fronds on Jumeirah Islands — will be available for lease.

''Keeping residential for lease adds revenue and value to our portfolio,'' Ali Rashid Lootah, Chairman of Nakheel, says of the move.

The developer isn't concerned about reports of rents dipping slightly.

''If they go up too much it's not healthy, so I look at rents levelling out as good news that the market is stabilising,'' says Lootah. ''It also depends on location. We have a waiting list for our lease portfolio.''

Mat Green, Head of Research and Consultancy — UAE at CBRE Middle East, says rental declines were not universal across all freehold properties.

''Developments such as The Greens and Dubai Marina have witnessed stable rental rates during the quarter,'' he says.

Rentals dipped in areas where new supply came online, while the holiday season also had a role in the decline, says Green. Average villa rents still witnessed growth of up to 8 per cent year-on-year because of restricted new supply over the past 18 months, according to the CBRE report.

''Smaller two and three bedroom villas, which are popular among new job entrants, registered an increase of 12 per cent and 11 per cent, while larger five- and six-bedroom villas registered just a modest single-digit growth,'' says Green. ''During the same period, seven-bedroom villas witnessed a similar marginal increase of around 3 per cent.''

MPM Properties' Dubai Real Estate Market Overview Q3 also recorded a mixed picture based on 23,000 properties it manages in the UAE. Villa rents in Arabian Ranches, The Meadows and The Springs were down 4 per cent compared to the second quarter. Rents fell 3 per cent on the Palm Jumeirah and in Jumeirah Village, while Mirdif and Jumeirah Islands recorded an increase of 2 per cent and 5 per cent respectively.

Apartment rents on the Palm Jumeirah and in Dubai International Financial Centre (DIFC) grew 1 and 2 per cent respectively, while rental rates in Jumeirah Beach Residence (JBR), Dubai Marina, Downtown Dubai and The Greens fell 5.5, 4, 3 and 1.5 per cent respectively.

Other areas surveyed remained stable. DIFC's strength could be subscribed to a lack of availability, while JBR's main drawback is its traffic problems and Downtown Dubai is still feeling the effects of a sudden surge in rental rates after Dubai won the rights to host the World Expo 2020, the report said.

''Initially, some tenants and buyers were paying the increase in prices, but they are now unwilling to do so. Therefore, the increase in asking prices and rents seems to be ebbing,'' says Jonathan Brown, Regional Head — Dubai at MPM Properties. ''A lot of owners had been driven by brokers suggesting unrealistic prices; it seems rationality has come back.

''Enough properties have remained vacant for property owners to become more realistic. We have a very low vacancy in our portfolio, but you only achieve that if you have reasonable rents.''

Marginal increase

On the other hand, rents increased in locations such as Jumeirah Village (5 per cent) and Al Furjan (2 per cent).

''The higher-value locations seem to have had greater rental reductions than other areas, while the more affordable areas had rental increases,'' says Brown. ''People seem to be spending their money on rents more wisely.''

Meanwhile, JLL's Dubai Market Overview Q3 2014 suggests that rent growth is slowing rather than dipping, as average rents grew by 2 per cent overall, down from 3 per cent in the second quarter.

''Small falls in rent by up to 5 per cent have been reported by others,'' says Craig Plumb, Head of Research — Middle East and North Africa at JLL. ''Nothing dramatic. There are still more places where rents are going up.

''Rents are stabilising, they are not falling wholesale. They may be falling in one or two specific buildings with traffic or quality issues. But generally speaking, I haven't met that many people yet who are saying their rents have gone down.''

While rent prices are leveling out, not everyone recorded a dip, which could be partly due to results becoming skewed if Ejari data is taken into account, says Mario Volpi, Managing Director of Prestige Real Estate.

''It may be difficult to know if statistics reflect the real sentiment of the market,'' he says. ''Rents could have gone up but didn't, as landlords couldn't simply raise rents because of the rental laws.''

However, Dubai's rental cap applies to existing tenancies only, not newly rented property, and would barely influence statistics, says Victoria Garrett, Associate Partner — UAE Residential at Knight Frank, which recorded slight rental falls in certain areas by no more than 3 per cent.

''Many of the changes to the rental market are potentially not being witnessed by existing tenants,'' says Simon Townsend, Business Development Manager — Middle East at DTZ Dubai. ''For instance, in the event of falling rents, these are only experienced on relocation; on lease renewals, the Real Estate Regulatory Agency's matrix guides the rent position.

''The matrix itself reflects market data, albeit it is location and not building specific, and as such in many circumstances rents could still be seen to climb.''

DTZ's Dubai Q3 2014 Report also recorded slower rent growth as average apartment rental prices increased by 2 per cent in the third quarter over the last, and by more than 24 per cent compared to the third quarter last year. The report showed studios attracted an average rent of Dh66,000, one-bedroom units around Dh96,000, two-bedroom units for Dh135,000 and three-bedroom units about Dh190,000.

The report, however, notes that affordability issues are critical in most households.

''One of the most challenging dynamics in the rental market is not the market driven rental levels, but the payment terms, which have reverted to the single or two cheque terms of the peak market,'' Townsend says. ''For new residents this can be a particularly tough financial burden, especially when in most established markets rents are paid monthly or quarterly.

''For companies looking to expand and recruit, the one off rental payment potentially adds a burden to cash flows.''

Townsend says the creation of the credit bureau in the UAE, which allows lenders to better establish the credit standing of borrowers, and advances in the banking sector could do away with the cheque system.

''It can't be long before monthly direct debit rents will be considered, albeit I am sure many landlords will at first take some convincing,'' he says.

Business districts

CBRE recorded stable office rents in commercial business districts and a 3 per cent rise in secondary locations. DTZ's report showed a 16 per cent rise in office rents compared to the previous year and 3 per cent compared to the second quarter last year, confirming the strong appetite for doing business in Dubai.

Meanwhile, there was a 30 per cent increase in the number of residence visas issued in the first half of this year compared to the same period last year. How this could bolster residential rent growth is still up for discussion.

''The question is, what is the demographics of those moving to Dubai?'' says Garrett. ''New residence visas include labourers, who wouldn't rent a regular property.''

According to JLL, new project announcements wouldn't have an immediate effect on supply, while the influx of people will help rents remain stable for the rest of the year.

''I think we're going to move into a period of price stability, both in rents and sales, for the next 12 to 18 months, where rents will remain in a fairly narrow band, maybe plus or minus 10 per cent,'' says Plumb.

''The market is close to the peak and we're going to reach that peak and go over it eventually, but there's nothing there yet that indicates it will happen, unless we get an external trigger that could cause rents to suddenly go to the extreme, either up or down.''

CBRE, meanwhile, expects the villa market to further deflate as more supply is being readied in Jumeirah Park, Arabian Ranches, Dubailand and Jumeirah Golf Estates. At the same time, the appetite for affordable homes is not expected to wane, as the growing retail and hospitality sectors are looking staff accommodation.

''No one can predict the future, but we don't expect rent declines to become severe,'' says Brown.

Plumb believes rents levelling out is a positive sign for the market, saying businesses couldn't afford higher rents than what they are already paying. ''Companies can sustain current rent levels, so I don't see a reason why rents should go down 20 per cent overnight, but they shouldn't go up either.''

Garrett adds: ''The drop in some areas is being welcomed. With new developments coming online, landlords are likely to become more realistic when pricing their rents, as there will be a lot more choices for people in the future.

''And if salaries don't match the rent, it simply doesn't add up.''

Read more on the rents dip after sustained increases in Dubai

Source: Nicole Walter, Special to Property Weekly


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