Cheer for tenants: Dubai rent decline to continue
dubai — Residential rents across Dubai registered no change during Q1 2018, according to property consultancy Cluttons. This marks the first stable quarter for rents in Dubai over the last 2 years.
On an annual basis, the worst performing segment of the rental market was high-end apartments in Downtown Dubai, Dubai Marina, Palm Jumeirah and the DIFC, where rents are down 4.8 per cent on this time last year.
The Dubai rental market is most likely to see a flight to quality and become 2-tiered once new supply starts getting delivered in the next 3 years.
“The growing volume of off-plan investment stock destined to be made available for rent after handover is likely to pose challenges in the future, particularly if all delivery timelines are met. The ability of the rental market to absorb a high volume of new stock will likely be tested over the next 3 years. Newly completed rental properties will command the attention of tenants while older and tired secondary properties will register rent falls,” says a Cluttons report.
The consultancy estimates that rents in Dubai will slip by up to 5 to 7 per cent during 2018, with similar declines in 2019 as rate of handovers gain pace.
Majority of sales appear to be taking place among international investors, who are likely to return the units to the sales market prior to completion or attempt to rent them out after handover. This will add to the downward pressures in the rental market.
There is a distinct lack of new supply in more affordable areas such as International City and Discovery Gardens and therefore rents are likely to remain stable in these communities. According to Cluttons, Dubailand (6,400 units) is likely to see the largest number of apartment completions this year, followed by Jumeirah Village (5,400 units) and Dubai South (3,000 units).
Cluttons forecasts that some 51,000 units are expected to be delivered this year, 53,500 in 2019 and 29,400 in 2020. This translates into about 134,000 unit deliveries
Tenants are negotiating better rents with current landlords Murray Strang, Head of Dubai at Cluttons
between now and the end of 2020. Over the same period, the city’s population growth should result in the addition of 77,500 households, as per Cluttons’ calculations. “It is likely that there will be some 20 to 30 per cent deliveries being delayed. Still, the growing mismatch between supply and demand will act as a strong drag on the market,” the report adds.
“Of the 134,000 homes in the city’s supply pipeline, circa 42 per cent are priced over Dh1,200 psf, while approximately 35 per cent are priced under Dh800 psf, which is where the majority of demand lies. Inevitably, should the planned supply be delivered according to the announced timelines, there is likely to be an oversupply of luxury homes, which will result in further corrections at the top end of the market,” says Faisal Durrani, head of research, Cluttons.
“At this point of time there is considerable supply of off-plan, mid-market homes under the Dh1,800 psf mark, causing intense competition among buyers, and as a result, it is becoming evident demand for high-end product priced above Dh1,000 psf is waning. The same could be said for completed stock available for rent — tenants are seeing better value for money and greater levels of availability in the mid-market, rather than high-end price bands, and are either negotiating better rents with current landlords or moving to newly handed over developments with mid-range pricing,” explains Murray Strang, head of Dubai at Cluttons.
— deepthi@khaleejtimes.com