The flight to affordability gains momentum as communities on the periphery offer value deals

Due to supply shortages, industry experts said they cannot see rents decreasing over the next two yearsImage Credit: Supplied

Budget-sensitive residents are once again considering cheaper outlying rental properties as prices continue their upward climb with no or little respite predicted for the near future.

While communities on the outskirts of Dubai are becoming popular, neighbouring emirates including Sharjah, Ajman and Ras Al Khaimah are also seeing residents moving to cheaper accommodation, says Praveen Mehta, Business Development Manager at Coldwell Banker UAE and Warren Philliskirk, Director of Mortgage International, a Dubai-based mortgage broker.

Ben Crompton, Managing Partner at Crompton Partners Estate Agents in Abu Dhabi, concurs. "The population of Abu Dhabi is increasing at an astounding rate. Just to keep rents stable a lot of property needs to be released onto the market at regular intervals. Currently, very little is being released and when it is it goes quickly. Rents are on the rise and will continue to lead an upward trajectory for some time yet.

"Due to supply shortages, industry experts said they cannot see rents decreasing over the next two years. Very little is due to come online between now and then, except on Reem Island, so get ready to tighten those belts," says Crompton.

Commenting on Dubai, Mehta says, "The supply of good new properties was less than the population that migrated to Dubai over recent years but over a period of two years supply will cross the demand, which will certainly affect the rents. Rents will stay stagnant or go a bit higher until 2016 but they will definitely drop down, in and after 2017, because of the excess of supply."

However, John Stevens, Managing Director of real estate services company Asteco, that as rents are "increasing steadily since 2013, many existing tenants have elected to remain where they are and absorb the rent increase, as indicated by the Real Estate Regulatory Agency (Rera) rental index, rather than start from scratch and incur the cost of moving and agent commissions."

Stevens adds, "It is also interesting to note that the flight to affordability is currently pushing prices up in traditionally cheaper communities such as International City, which recorded the highest year-on-year annual growth of 66 per cent in the second quarter of this year."

Where to find bargains

The picture is not entirely bleak, as real estate experts have pointed out communities where rent is still relatively affordable.

"For residents willing to look beyond the perennially popular and high-budget areas such as Downtown Dubai and Dubai Marina, a move to an outlying community such as Jumeirah Village and The Springs or across the Dubai Creek may be an option," says Stevens.

"A two-bedroom apartment in International City is currently leasing for up to Dh70,000 and when you compare this to somewhere such as Jumeirah Lakes Towers where the equivalent rents go for about Dh150,000, the attraction is clear. One-bedroom units in International City are also relatively affordable at up to Dh53,000 as at quarter two in 2014," adds Stevens.

Stevens also says that across the Creek in Deira - the original urban heart of Dubai - one-bedroom apartments go for Dh55,000-Dh80,000, two-bedroom units for Dh80,000-Dh110,000 and three-bedroom apartments for between Dh115,000 and Dh150,000.

One- and two-bedroom units in Discovery Gardens remain popular and are currently renting for Dh65,000-Dh75,000 and Dh85,000-Dh95,000 respectively.

Mehta says Jumeirah Village Circle, Dubai Sports City and the International Media Production Zone are attractive to those seeking lower rents. Rents in those areas range from Dh55,000-Dh65,000 for a one bedroom, Dh75,000-Dh100,000 for a two bedroom, Dh110,000-Dh135,000 for a three bedroom, and Dh140,000-Dh155,000 for a four bedroom. Prices of units depend on size.

For villas, Stevens says Jumeirah Village remains a popular option despite an 11 per cent increase in quarter two with a three-bedroom townhouse typically going for Dh155,000-Dh185,000 per year. Two-bedroom units are renting for Dh140,000-Dh170,000.

In The Springs, two-bedroom villas are fetching Dh145,000-Dh155,000 (an increase of 9 per cent quarter-on-quarter for quarter one and quarter two of this year). Three-bedroom homes at The Springs are currently going for Dh180,000-Dh220,000.

Other emerging communities located along the Mohammad Bin Zayed corridor, such as Dubai Sports City and Dubai Silicon Oasis, are going for reasonable rents, but have also recorded an average growth rate of 10 per cent in quarter two.

In Abu Dhabi, Crompton says that Al Rayanna was very popular but is currently rented out. One-bedroom properties were Dh80,000, two-bedrooms Dh120,000 and three beds Dh160,000. "Reem Island is a lot more expensive now, but you can still get one beds for Dh85,000, two beds for Dh130,000 and three beds for Dh170,000."

Crompton points out that Abu Dhabi is moving more outward towards Raha Beach and Khalifa City. "The centre of the city is now out by Khalifa Park and Between the Bridges. These areas offer good villa compounds at reasonable prices with more space than you can get in the city."

Stevens says in the first quarter of this year Sharjah recorded a 7 per cent quarter-on-quarter growth for apartment rentals, with a year-on-year figure of 38 per cent.

"Ajman is also giving Sharjah a run for its money, registering a 7 per cent increase in quarter two of 2014, but it is still considered ultra affordable by many, with two-bedroom apartments available for between Dh30,000 and Dh45,000 per year in comparison to up to Dh80,000 in Sharjah," says Stevens.

He adds Sharjah's older apartment buildings are also seeing an upswing with an average growth of 6 per cent quarter-on-quarter.

"The emirate's transportation infrastructure is also undergoing a comprehensive infrastructure upgrade, which is making the daily commute to Dubai easier."

Stevens says tenants looking even farther afield can expect to pay up to Dh75,000 for a premium two-bedroom unit in a master-planned community in Ras Al Khaimah.

Criteria for residents

Rents may be on the up and up, but residents still want value for money. According to Stevens, location, personal lifestyle, accessibility to relevant services such as schools, and proximity to workplace are just some of the factors people (whether singles, couples or families) consider when looking at rental properties. He says, "This has to be factored in when balancing these considerations against value for money in terms of apart-ment/villa affordability and budget savings."

Philliskirk says, "The choice of rental properties is coming down to the cost, which determines everything. If you have a family, you have more to consider such as schooling, but the overarching criterion is cost."

Crompton agrees. "Price is still king for most people but we have noticed people willing to pay a premium for proximity to schools. For example Cranleigh school, which has just opened up on Saadiyat Island, has had a significant impact on rents in that area."

Upcoming developments

Over the next 15 months and into 2016, Asteco research indicates that residential apartment and villa rental increases will continue steadily but at a more gradual rate compared to the past 12 months as new supply enters the market particularly in the next three to five years.

"On the demand side the UAE's, and in particular Dubai's economic growth, will generate investment demand to accommodate the thousands of new expatriate arrivals, which the government forecasts, in the gradual build-up to Expo 2020," says Stevens.

On the supply side, Asteco research implies that new property releases to the market should be strong enough to absorb the increasing demand without putting undue pressure on leasing rates.

In terms of recent market releases, Stevens says Asteco observed a raft of developments including Dubai Properties Group projects such as Manazel Al Khor in Culture Village, Rahat Villas at Mudon, and 200 new units at Remraam, joining a growing list of announcements, with Damac also launching its NAIA Hotel and Hotel Apartments, 34 premium Fendi Villas at Akoya Drive, and two hotel apartments at Jumeirah Village.

Emaar also launched Opera Grand, the first residential development in the Opera District and Danube's inaugural UAE project, the 171-townhouse Dreamz community at Al Furjan.

What you need to know when renting property.

Source: Leigh Thomas, Special to Property Weekly


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