Rental rates in the northern emirates likely to cool

SharjahThe Sharjah, Residential Market Outlook, Winter 2014 report by Cluttons reveals that in Q3, rents across the emirate increased by 5.3 per cent, in comparison to a 5.7 per cent rise in Q2

There is good news for those looking to rent in the northern emirates of Sharjah, Ras Al Khaimah, Ajman and Umm Al Quwain.

Going by the trends in the third quarter, the value of realty and rental spikes in Dubai have had an effect on these emirates, and with the softening of rents in many affordable communities in Dubai, a drastic spike in the other emirates seems to be less likely, say experts. Consequently, the trend of Dubai residents searching for affordable accommodation in these emirates appears to be slowing down despite a positive third-quarter performance of the northern emirates’ real estate market.

In Sharjah, the overall tenant demand is also fuelled by the need for staff accommodation for the airline, hospitality, and food and beverage sectors, most of them with offices in Dubai.

Growth in rental value in Sharjah is a result of demand outstripping supply. While new realty projects are in progress, deliveries will not happen in the near term. However, as witnessed in Abu Dhabi and Dubai, Sharjah’s market may be approaching an affordability threshold as average household incomes struggle to keep pace with the rapid rise in the rental rates.

According to the latest northern emirates market report from Asteco, a leading real estate company in the Middle East, Dubai’s market dynamics are prompting a slowdown of growth figures and could herald a softening in demand for competitively priced units in the northern emirates, as its market conditions continue to adjust.

Ripple effect

“Real estate market values in Sharjah and the northern emirates are largely dictated by what’s happening in Dubai,” says John Stevens, Managing Director of Asteco.

“The softening of rental rates in some of its more affordable communities in Q3 inevitably had a ripple effect across the northern emirates.

“This is an indicator that rental rates in the northern emirates could be reaching a peak, with the distinct possibility of a slowdown in the number of relocations in the medium term as residents opt to return to Dubai to avoid the daily commute.”

Nevertheless, Q3 witnessed a continuation of the positive trend seen over the past 12 months, with quarter-on-

quarter increases of 2 per cent in Sharjah, 5 per cent in Ras Al Khaimah, 4 per cent in Ajman and 6 per cent in Umm Al Quwain.

“This proves that budget conscious residents are still willing to trade location and convenience for cheaper alternatives that cost two or three times lower than equivalent units in Dubai’s most affordable communities,” says Stevens.

Boost for Ajman

Ajman is rising with several on-hold projects resuming construction. “Another boost for the emirate and one that will raise its profile is the Al Zorah project from Lebanon’s Solidère Group. This development is under construction and will add a new dimension to Ajman’s real estate landscape, targeting regional and international buyers,” says Stevens.

The Ajman government is also taking steps to improve the property and tourism sectors by allocating 40 per cent of its fiscal budget to new developments. These include a new airport in Al Manama and seaports, which are also part of Ajman’s 2021 strategy.

The rent for a two-bedroom apartment in Ajman or Fujairah ranges from Dh30,000-Dh50,000. In comparison, the average rent in Sharjah for the same would be Dh23,000-Dh65,000, excluding prime areas such as the Corniche.

In UmmAl Quwain, a two-bedroom apartment costs Dh27,000-Dh30,000, while in Ras Al Khaimah rents start at Dh28,000 and can go up to Dh70,000.

In Sharjah, rents in certain neighbourhoods recorded above-average growth in Q3 led by an 8 per cent rise in Al Qasimiah, Abu Shagara and the Corniche. One-and two-bedroom units in these three areas cost anywhere between Dh40,000 and Dh80,000.

Upward pressure

According to a report by Cluttons, a real estate consultancy, rents in Sharjah continue to face upward pressure, particularly as the supply pipeline remains limited. However an affordability threshold may be in sight for the villa segment.

The Sharjah, Residential Market Outlook, Winter 2014 report reveals that in Q3, rents across Sharjah increased by 5.3 per cent, in comparison to a 5.7 per cent rise in Q2. But for villas, rent acceleration slowed to just under 7 per cent during Q3, from 8.2 per cent in Q2.

Faisal Durrani, International Research and Business Development Manager at Cluttons, says, “The dip in the pace of rising villa rents is not a reflection of weakening demand, but instead points to an emerging affordability threshold, as average household incomes are failing to keep up with the fast-paced growth in rents. The core issue of affordability is expected to curb the strong rental value growth that has been recorded over the past 18 months.”

Steep rise for apartments

The report also reveals that apartment rents have increased by 35 per cent in the year up to the end of Q3, and 26.4 per cent in the first three quarters. Tenant demand has persisted, even against a backdrop of relatively static supply. The lack of options has led to households remaining in situ at renewal, capitalising on the three year Sharjah Municipality rent cap.

Steve Morgan, Chief Executive of Cluttons Middle East, says, “We expect that the unavailability of stock, along with the rising demand will help to drive a wave of refurbishments across some of the city’s older buildings as landlords capitalise on the buoyant conditions.”

Durrani adds: “At the United Arab Bank buildings, for example, we recorded an uplift of 45-55 per cent in rents, following an extensive three-year renovation that cost Dh6 million. A large number of similar residential towers in other prime locations are yet to achieve their full rent potential.”

New developments

Cluttons’ report highlights growing demand in the sales market. This is evidenced with Tilal Properties releasing residential and commercial plots at Tilal City, a new community in Sharjah. The landmark development will allow non-Arab expats with UAE residency visas to purchase land in the emirate for the first time.

“As the government eases restrictions on foreign ownership, developers are turning their attention to gated communities with a focus on matching the quality of developments in suburban Dubai,” says Morgan.

“Similar freehold schemes will pave the way for investors looking to enter a market where average home values are roughly two-third lower than Dubai. However, without a proven track record, development financing is likely to remain a challenge.”

Source: N.P. Krishna Kumar, Special to Property Weekly


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