Era of lower rents on the horizon in UAE

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Jul 15 2015

Era of lower rents on the horizon in UAE

A new era for Dubai’s residential market is on the horizon, as rental rates for apartments and villas across the city continued to decline in the second quarter, according to the latest ‘UAE Property Review’ report of Asteco.

Rental rates for apartments and villas dropped by an average of two per cent in the second quarter versus the first quarter (and five per cent year-on-year for villas), with marked declines at the higher end of the market, the real estate consultancy said. Homes for sale also recorded an average fall of two per cent, with some areas performing significantly worse than others, dropping 11 per cent year-on-year for villas, while apartments decreased seven per cent.

According to another report by real estate firm Core Savillis, apartment rents in Dubai are expected to see a steady decline of three to four per cent this year while villa rents are set to fall marginally by one to two per cent. Dubai’s apartment rents fell 0.3 per cent per month during the last six months but villa rents remained flat.

A report by Cluttons also said rents in Dubai have been falling since the fourth quarter of 2014 and have continued to slide marginally in the first quarter of 2015.

According to Emirates NBD Dubai Real Estate Tracker, real estate agents in Dubai are expecting a ‘moderate’ decline in average rental prices in the third quarter of 2015.

“The softening in Dubai’s residential rental market appeared earlier than we originally anticipated, offering tenants an opportunity to recoup somewhat after several tough years of high rents,” said John Stevens, managing director, Asteco.

“The decrease was felt throughout the market and areas with a significant amount of completed new supply were the most affected. Additionally, some buyers of nearly completed buildings were keen to sell at negative premiums due to the imminent completion of the building, which required final payment,” he added.

The highest quarter-on-quarter apartment rental declines were recorded on Shaikh Zayed Road (seven per cent), Palm Jumeirah (six per cent) and Jumeirah Beach Residence (seven per cent).

Conversely, IMPZ, Dubai Sports City and Dubai Silicon Oasis recorded higher rentals compared with 2014, of between six to 13 per cent due to the completion of community infrastructure and increased occupancy levels, making them popular mid-market residential areas.

In the villa segment, the handover of projects like Casa Villas at Arabian Ranches brought rental rates for the area down by seven per cent quarter on quarter, and 15 per cent year on year. At the Mudon community, the ongoing handover of three- and four-bedroom townhouses, with competitive pricing starting at Dh175,000 per annum, put pressure on landlords of neighbouring developments to secure and retain existing tenants.

“We even saw a six per cent decline for Palm Jumeirah, with the handover of the lower specification Palma Residences townhouses impacting rental rates due to their lower price band. So, we are seeing a similar tenant-friendly trend in the broader villa market, with more flexible installment plans for example, and this is set to continue as areas like Dubailand continue to deliver new supply,” noted Stevens.

Apartment sales in the second quarter were marked by a shift towards more affordable properties with locations such as IMPZ, Dubai Silicon Oasis, International City and the recently handed over Queue Point and Sky Courts developments in Dubailand witnessing sustained demand as yields for studio and one-bedroom apartments remained attractive.

Affordability was also a priority for villa investors, with Jumeirah Village recording a high number of transactions for some of the townhouses by Nakheel and in Indigo Ville, priced at Dh700,000 up to Dh1.2 million. In comparison, larger properties, including five- and six-bedroom villas, saw minimal transactions completing in communities such as The Villa or Dubai Sports City, despite strong rental demand.

“However, despite strong transaction levels, the increasingly competitive market environment, with a lot of new supply, means that the two per cent quarter-on-quarter decline is not going to be a temporary blip, with more pressure on owners to review their selling price, still to come,” said Stevens.

Asteco also noted an emerging trend by a limited number of purchasers, who were advertising off-plan properties, not yet in the construction phase, at negative premiums, in a bid to relinquish financial obligations.

Standard & Poor’s Ratings Services said in a report that the property market in the UAE is set to soften in 2015 and early 2016 after reaching a peak in 2014 with additional supply and lesser demand resulting in a moderate 10 per cent to 20 per cent correction in residential real estate prices. However, this correction – after three years of sharp price appreciation – should be nothing on the order that led to the crisis in 2009. Moreover, real estate companies are better armed to deal with the current slowdown and should be able to absorb it with limited ratings impact, the ratings agency said in a report.

Source: khaleejtimes.com

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