Shortage of affordable options
If there's one thing that's on the mind of all Dubai residents, it's their ever-increasing rents. With hikes that have gone up as high as 23% year-on-year, it is clearly a problem for budget-sensitive tenants.
In fact, the cost of renting is going up by 'unsustainable' levels, according to Asteco. International City has witnessed some of the biggest hikes at 11% in the first quarter of 2014 compared to the last quarter of 2013. Another affordable location, Jumeirah Lakes Towers, also saw significant price hikes.
In order to see any slowing down of increasing rents, immediate supply needs to get into the hands of end-users. In the first quarter, 1,800 units were handed over in the city and a further 24,000 are expected for the full year. While an estimated 39,000 homes are expected to be delivered in next two years, it is unclear whether this is sufficient to keep medium-term rental increases in some sort of check.
The increasing rents are a result of the growing property market, driven by Dubai winning the bid to host Expo 2020. Even the International Monetary Fund has increased its growth forecast for the UAE, citing rising real estate prices and Dubai's World Expo 2020 win as a major reason. The Washington-based IMF said the UAE is set to grow 4.4% this year, compared with an estimate of 3.9% in October. With real estate prices rising at a fast pace, "the award of World Expo 2020 has further strengthened growth prospects," the fund said in its World Economic Outlook.
According to the chief of Dubai Investments, Khalid Bin Kalban, "the growth cycle in UAE's real estate market has just begun. Generally, the real estate is a five-year growth cycle...and we are just at the start of the first year."
Market Insight is aimed at examining the emirate's dynamic market and forecasting industry trends. Rentals are an increasing concern for all residents in Dubai. However, there is a certain dynamism in the sector that cannot be ignored. While budget-sensitive residents might decide to shift to more affordable communities or out towards the Northern Emirates, many other continue to invest in prime property, hoping for greater returns in a market that's on a growth trajectory.