Uneven rent fall in Dubai

With more properties coming on to the market, rental rates in some areas of Dubai are levelling out – even witnessing a drop, according to a leading property developer.

Andrew Chambers, Managing Director of Asteco, said that with supply starting to outpace demand stable rental rates in the mid-market range could continue into the remainder of 2008.

“I think it will be steady and you will see smaller percentage increases in mid-level properties,” Chambers said. “High-end properties will continue to command large rental rates.”

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Tens of thousands of new units are expected to be handed over by developers this year easing pent-up demand and bringing down ballooning rents.

Actual property sales, however, show no signs of slowing down.

In April, Asteco released figures comparing the first quarter rental rates to the fourth quarter of late last year and found that there were “no significant changes in Dubai’s annual rents” in some corners of the city.

For example, rental rates for a studio apartment in International City in the first quarter of 2008 was Dh42, 000 this year compared to Dh42,500 in late 2007.

In Dubai Marina, the rent for a one-bedroom flat dropped from Dh112, 500 in late 2007 to Dh107,500 in the first quarter of this year.


BUMPY GRAPH

But, there were instances in higher-end areas where rates jumped despite a rent cap of five per cent implemented by the Dubai government.

In new apartments, landlords can charge large sums because the tenants are first-time renters in that building and are not subject to the rental caps.

For example, studio apartments in Greens that were going for Dh65,000 in the last quarter of 2007 were being offered for Dh85,000 in the first quarter of 2008.
In Old Town Burj Dubai, rental rates of a two-bedroom flat jumped from the average of Dh145,000 last year to Dh175,000 earlier this year.

Graham Mears, a financial advisor with Property Finance Link said he was very surprised to see lower recent rental rates of flats in some areas, noting that some landlords have adjusted prices to meet lesser demand in places such as Dubai Marina and Jumeirah Lakes Towers.

“I would argue that Asteco numbers may be right,” said Mears. “I am surprised to see how low [rental] prices were in some areas.”

RENT CAP EFFECT

Alexis Waller, a partner with Dubai’s Clyde and Co, said she has witnessed more properties going up in rental rate value. She added that a stay in rates “certainly has not been my experience”.

That said, Waller said she believes that smaller increases in some areas of the city are due to the rent cap.

“In those areas, it does go to show the rent cap is taking effect,” said Waller, noting that the rent cap can be diluted if a lot of people move out of an area, allowing landlords to drastically hike rates on an empty flat.

Louise Pitt of the leasing department at Landmark Properties said her firm is working hard to meet demand by renters because housing stock is still tight.

“According to our figures, our inventory is very slow at the moment,” Pitt said. “They [landlords] are able to command high prices because there is low inventory.”

Pitt said one rental listing for a four-bedroom villa in Jumeirah commands Dh390, 000 annual rent.

Six months ago, a three-bedroom villa in Mirdiff could be rented annually for Dh160,000 but similar villas are now renting for more than Dh180,000, Pitt said.

Rental rates, she said, are really still as varied as are the types of flats and neighbourhoods in Dubai.

A number of projects have been handed over in 2007/2008 which has helped ease the shortage of properties we saw in 2006 and 2007, said Liz O’Connor, Head of Residential Leasing, Better Homes. There is much more choice in today’s market for tenants and with 63,000 units expected to be handed over in 2008 this should continue, she added.

“However, we are still seeing a strong demand for all properties, particularly one bedroom apartments, across Dubai. Due to the majority of the completed projects being apartments, rents for villas increased in the first quarter of 2008 in areas such as the Springs, Meadows, Jumeriah Islands and Palmera. Apartments in some areas such as The Shoreline Apartments on The Palm Jumeirah also increased in rent due to a lack of stock. Interestingly, we saw a slight reduction of rents in villas on The Palm Jumeirah at the end of 2007 but since then they have increase," she elaborated.

The rental cap has been successful in stabilising rents in properties already tenanted, Liz said.