Dubai property rents drop, unlikely to rise sharply in the short-term – report

Residential rents in Dubai are continuing to soften, with rents now 1.5 per cent lower than this time last year, according to a new report by Cluttons.

Total rental growth stood at 0.4 per cent in 2014, however a 0.4 per cent dip in average rents during the first quarter of 2015 has negated the slight gain, it added.

Both apartments (down 0.3 per cent) and villas (down 0.5 per cent) saw decreases in rents during the first quarter, but many households are yet to feel the benefit of this.

“With the RERA Rent Index system yet to evolve into a complex rental matrix that factors variables such as views, size of units, age of the building, etc., it will continue to lag reality, leaving tenants somewhat constrained by a rental index that does not fully reflect market conditions,” said Faisal Durrani, Cluttons’ international research and business development manager.

Dubai’s property market is also seeing an increase in supply. Over 12,600 units are expected to come to the market by the end of 2016 and a further 15,800 completions are scheduled between 2017 and 2018.

Hence landlords are growing wary of the threat of longer void periods, which may trigger a period of “off-grid” deals, where landlords and tenants agree to rents that are not in sync with RERA’s recommendations, the report said.

But the risk of an oversupply appears to be minimal, considering the anticipated population growth of close to 400,000 over this period, stated Durrani.

The growth in new jobs, linked to both economic growth and diversification, and the reverse migration from Sharjah will ensure that the current stabilisation in rents will persist.

“The expected economic growth and rate of job creation should mean that supply and demand remain fairly well matched, at least in the short term, barring any surprise external economic shocks,” he explained.

Steve Morgan, CEO at Cluttons Middle East added: “What the additional supply does mean however is that the supply-demand equilibrium is likely to be maintained as the population grows in tandem with the rising number of completions, suggesting that any strong turn around in rental value growth is unlikely, given the current projections.”

A recent report by CBRE also suggested that the rental inflation in the city has slowed, but found that rents rose three per cent in the first quarter of 2015.

Rents in Dubai surged drastically in 2013 and early 2014, making it unaffordable for several residents. However, governmental measures introduced around a year ago have helped the overall property market stabilise, with prices also remaining steady in the last two quarters.