More supply to weigh on Dubai house rents in Q1
During 2017, residential rents declined at a faster pace than prices, resulting in yield compression in most communities. Primarily, new project handovers have impacted rent performance. According to Property Monitor Supply Tracker, more than 13,800 apartments and over 7,800 villas/ townhouses were handed over in Dubai during 2017. Rents for residential properties have also been impacted by sluggish business growth and the impact on jobs in the emirate. While certain sectors have downsized, resulting in job losses, others have readjusted housing allowances and subsidies, leaving tenants with tighter budgets.
Rent performance
For apartments rented in 2017, the three most popular areas among tenants were Dubai Marina, Downtown Burj Khalifa and Palm Jumeirah. In these three areas, 12-month change in rents averaged 3.5 per cent, with studios in Downtown and one-bedroom units in Marina registering rental declines of more than four per cent. According to the Property Monitor Index, the average apartment rents as of December 2017 across freehold locations in Dubai ranged from Dh32,340 for studios in International City to Dh177,984 for two-bedroom units in Downtown. Majority of the rental contracts signed in 2017 across Dubai were in the Dh80,000 to Dh120,000 per annum range (31 per cent), followed by 27 per cent contracts in the Dh50,000 to Dh80,000 per annum bracket.
Among villas/townhouses rented in 2017, the most active locations were Emirates Living, Arabian Ranches and Reem. Within Emirates Living, The Springs and The Meadows registered 12-month declines of around five per cent. Similar declines have been recorded in Arabian Ranches as well. According to the Property Monitor Index, the average villa/townhouse rents as of December 2017 across freehold locations in Dubai ranged from Dh158,400 for three-bedroom units in Al Furjan to Dh405,600 for five-bedroom units in The Lakes. Majority of the rental contracts signed in 2017 for villas/ townhouses across Dubai were in the Dh120,000 to Dh180,000 per annum range (42 per cent), followed by 27 per cent contracts in the Dh180,000 to Dh240,000 range. These metrics point towards increasing interest among residents for smaller villa/townhouse units that have now become more affordable than before. This trend is expected to continue as additional lower priced villa inventory will enter the market in the coming quarters.
Multiple cheques
In addition to lower rents in 2017, the market took a turn away from being landlord-driven to becoming a tenant-market, whereby increased supply has brought wider choice to residents and eased the burden to a certain extent. While landlords continue to offer incentives like first month rent-free, tenants are also being able to negotiate on terms like number of cheques. Rent payment through multiple cheques is slowly becoming the new norm for residential properties in Dubai and this was particularly evident in 2017 when four cheques made up 58 per cent of rental payments for apartments, whereas one cheque made up only 22 per cent of the total. These figures represent a shift from prevalent structures in 2016, where four cheques made up only 23 per cent and one cheque made up 46 per cent of the total. In 2017, rental contracts for villas/townhouses were also dominated by four cheques payment, which accounted for 62 per cent of the total payments. In comparison, one cheque payment made up 56 per cent and four cheques made up only nine per cent of rental payments in 2016.
Outlook for 2018
Buildings with superior quality, facilities and maintenance will continue to fare better and achieve higher occupancy rates. Increased choice has led to tenant movement both within the same community to better buildings as well as migration to communities with better infrastructure. This differentiation is expected to continue as residents find themselves in charge when it comes to choosing a property within budget.
In 2018, a total of 54,000 units are scheduled for completion, of which around 78 per cent are apartments. These include delayed projects from earlier years and actual materialisation is expected to be much lower, at around 16,000 to 20,000 units, as in previous years. Rents will continue to face further pressure in the first quarter of 2018 because of this additional supply and subdued business sentiment. Any recovery in residential property rents would be linked to improved rate of job creation on the back of sustained business growth and increased government spending on infrastructure ahead of Expo 2020. The writer is senior consultant, strategic consulting and research at Cavendish Maxwell. Views expressed are her own and do not reflect the newspaper’s policies.