Expecting a rapid drop in Dubai rents? Then better be patient. And read this.

29.04.2018

Those residents of the "future city," who expect a further and immediate decline in rents, should better wait and see. Read more to find why.

The pace of decline in Dubai rents seems to have begun stabilizing at last, thus it’s hardly worth waiting for an early and significant rental price reduction. At least, at the moment, Cluttons consultancy’s experts say.

“As against the 8 per cent or so year-on-year decline, Q1-18 transactions suggest that this is coming down by 3 per cent or so,” said Faisal Durrani, Head of Research at Cluttons.

“There seems to be some stability building up for rents, and the first such quarter in over two years,” he added.

According to the latest data, International City and Discovery Gardens tend to demonstrate the most signs of stable rents, while posh areas such as the Palm Jumeirah, Dubai Marina and DIFC are experiencing a downward continuous pressure on rents of about 4.8 per cent.

Overall, freehold Dubai communities saw a total decline of about 18 per cent in the last three years of the market monitoring.

But this, still staggering rental stability could easily be swept away by thousands of units of new supply, pessimistic experts forecast. Cluttons says 134,000 more new freehold units are about to be delivered in between now and the end of 2020 in a best-case scenario. And of these 134,000 units, just over a third are priced under Dh800 per square foot, just right where much of the buying capacity range lies.

Even if 20-30 per cent of the forecasted supply fail to reach completion, the size of the expected market swelling with new units is rather impressive.

“Our projections are for 78,000 new households in the next three years - that means there will be far more supply than is actual demand,” said Durrani. “As we know from over the years, people are quite opportunistic to relocate when rents are favourable.”

Those older homes with less quality service could be the first to be hit with this trend. In order to retain rents at least at previous level, landlords should think of timely renovations, which would be better to start today, experts recommend.

“We expect newly completed rental properties to command the attention of tenants, while older and more secondary property will register rent falls,” said Murray Strang, Head of Cluttons Dubai.

“This flight to quality phenomenon will likely result in the creation of a very distinctive two-tiered market. In the short-term, we expect rents to slip by up to 5-7 per cent over the remainder of 2018.”

And if certain measures will be taken to prevent a glut of new properties coming to market, the situation could be made easily manageable.

This refers, partly, to a considered 50 per cent project completion cut-off before sales requirement, Dubai Land Department was mulling recently.

“If the 50 per cent requirement happens, the pressure on land prices will reduce, and the city may eventually see more measured, modest and appropriate homes brought to the market that actually matches the underlying demand,” Cluttons says.

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