Dubai residential rents are losing steam
Landlords in Dubai are offering all sorts of incentives to retain existing tenants or try to win over new ones. These include free months’ rent, multiple cheques and waived commission.
Rents in Dubai witnessed an average 12-month change of -4.2% in Q1 2018, says the consultancy.
“The pressure on housing allowances has also impacted rental market performance and the pool of tenants at the higher end of the spectrum continues to shrink. It has been a tenant-led market and the increasing stock levels each quarter have provided ample opportunities for negotiation on base rents as well as payment terms such as number of cheques,” says Lynnette Abad, Head of Property Monitor at Cavendish Maxwell.
The majority of rental agreements for residential properties in Q1 2018 were made with 1 cheque (50 per cent of total), followed by 24 per cent rent payments made through 4 cheques, says Cavendish Maxwell. The top areas where 4 cheques were prominent during Q1 2018 include Mirdif, Emirates Living, Arabian Ranches, Jumeirah Village Triangle and Jumeirah Park.
The trend has reversed since Q1 2017 where the majority of rent contracts (43 per cent of total) were 4 cheque payments. This is mainly because some tenants are negotiating larger discounts on base rents and agreeing to make 1 cheque payments instead of multiple payments.
Rental declines were more pronounced in Business Bay, Discovery Gardens, International City (clusters), Jumeirah Golf Estates, The Springs and Al Furjan Villas, averaging 12-month declines of more than 5 per cent, informs the consultancy.
“Declines will be more pronounced in areas with increasing supply and those located away from central business districts and public infrastructure. In communities closer to public infrastructure and the CBD, rents will not fall as much. Within the same community, we are seeing different buildings trading differently. Good quality buildings maintained well are seeing good occupancy and rents holding up,” details Manika Dhama, senior consultant in the strategic consulting and research department at Cavendish Maxwell.
Dounia Fadi, CEO, MD Properties Dubai, explains: “Rents are under stress since demand is not meeting current supply levels. For instance, villas on the Palm Jumeirah can be rented for as low as Dh350,000 and the new phase of villas in Arabian Ranches can be rented for Dh165,000. Landlords who are dictated by their financial liabilities and service charges are proving to be flexible and listening to tenants’ demands.”
How sales market fared
Off-plan transfers accounted for 61 per cent of the total transfers in Q1 2018. Business Bay, Mohammed Bin Rashid City and Jumeirah Village Circle dominated the off-plan transfers tally during the first quarter of the year, according to Cavendish Maxwell. Meanwhile, traditional favourites including Dubai Marina and International City led the secondary market apartment transfers, along with Dubai Sports City.
Secondary market transfers among villas/townhouses surpassed the off-plan transfers in this category in Q1 2018, led by Emirates Living and Arabian Ranches, which together accounted for more than 42 per cent of the total villa/townhouse secondary market transfers registered during the first quarter.
“In times of price and rent declines, buyers move towards stable, established locations such as Emirates Living and Arabian Ranches for villas. End-users are also looking at completed or ready-to-move-in property. We will see more of that happening this year. Last year, there was a wave of lower-priced inventory entering the market. We don’t expect to see the off-plan run that we saw last year,” adds Dhama.
Fadi remarks: “We have seen a dip in sales volume and value in Q1 2018 as compared to Q4 2017 and Q1 2017. Developers exhausted all their incentives and payment plans last year. They are re-strategising before making any launches. Smaller developers will focus more on delivery, not launches, this year.”
“The market was hoping to see a recovery in 2017. But there is still more room for prices to bottom out in 2018,” points out Zarah Evans, managing partner, Exclusive Links Real Estate Brokers.
Not a lot of existing renters have the resources to put down 25 per cent of a property’s value as down payment. For such buyers, the region now has a regulated platform for crowd-funding real estate. Smart Crowd is a digital real estate platform that aims to reduce barriers to entry in the property ownership market in Dubai.
“We allow investors to come in with minimum capital, for as low as Dh5,000. In return, you get a rental yield proportionate to your share plus any capital appreciation from your investment. You can choose what asset you want to invest in from our platform. Developers and agents list their property with us. We will charge the buyer a structuring fee of 5 per cent for the transaction,” explains Abdul Kadir Faizal, co-founder and chief operating officer, Smart Crowd.