This article was originally published in propertyfinder Trends Report 2017 – click here to read online (Adobe Flash required) or click here to download PDF instead. To request a printed Report, please email us on firstname.lastname@example.org
Say goodbye to one-cheque payments and the double- digit yields of a landlord-driven market and welcome in the dawn of the tenant-favoured era. It’s certainly not the story that any landlord wants to hear but it is rapidly becoming the new “norm” of the Dubai rental market. Our internal market intelligence, kwIQlytics, reveals that from the peak of the market (September 2014) we have seen rents fall by 9.7% for apartments and 13.3% for villas. Some sub-markets have been affected more heavily than others. In the villa segment, Jumeirah Islands fell 17.1%, Arabian Ranches 16.7%, Jumeirah Village Triangle 15.2%, Emirates Hills 13.6% and Jumeirah Park 13.6%. In the apartment segment Jumeirah Beach Residence slumped by 13.9%, Discovery Gardens 12.8%, Marina 11.9%, Downtown 9.1% and International City 12.4%.
As we now close the books on Q2 of 2017 and reflect on the most recent quarter it’s clear that the downward trend on rents continues broadly across the market, with final signed lease prices (not initial asking prices) for apartment rents down 1.96% and villas dropping 1.1% quarter-over-quarter. Again, some sub-markets are experiencing steeper drops than others for the quarter. Jumeirah Islands fell by 3.1%, Emirates Hills 2.9% and Jumeirah Park 2.8% in the villa segment. Apartments also took a hit in areas such as The Views which dropped 4.8%, International City 4.6%, Downtown 2.9% and Palm Jumeirah 2.7%.
Why is it that the market continues to weaken? The macroeconomics of falling GDP, rising inflation and cost of living, coupled with a softening of the job market for both new and existing positions are all contributing factors, however it may be even simpler than that. It largely comes down to basic supply and demand. In recent years, Dubai’s new development market has gone from strength to strength, with a myriad of new projects being announced as well as delayed projects from the last boom market resuming. Handovers for this year alone are slated to be upwards of 30,000 units with approximately a tenth of that amount already delivered year to date. In addition to these new handovers, we are also seeing secondary market “shadow inventory” finally hit the market, where properties which were initially primarily purchased to park money or for capital appreciation, and then left untenanted post-handover, are now being switched to income producing assets as investors come to terms with the drawn-out stagnant period and minimal capital appreciation. Expect to see more of those perpetually dark apartments in the towers around you finally have some lights on! As overall supply continues to increase, it is unfortunately not being met by an appropriate net increase in demand. Until job numbers, population growth, and economic growth enter their next positive phase, which we anticipate seeing in mid-to-late 2018 in response to spending from both government and private sector in the lead up to Expo2020, expect to see further weakening of the rental market.
While the ongoing decline in rents seems to not have a short-term endpoint in sight, savvy tenants and equally astute landlords are keeping the market moving forward. In addition to lower rents, new tenants and their brokers have been able to negotiate concessions that were previously dismissed or largely unheard of in the Dubai market such as rent free periods, owner paid broker commissions and an increase in the number of cheques accepted. Cheque frequency has by far been the most prevalent of these with the days of one-time lump sum payments a thing of the past and four cheques the new standard. We’ve even seen the unthinkable… monthly cheques for a growing handful of landlords.
For tenanted properties, there has been a rise in landlords eager to keep their current tenants rather than face the prospect of any vacancy loss period. Instead of simply offering a renewal at the same terms they have proactively been extending similar favourable incentives such as rent reductions and an increased cheque frequency throughout the lease term. Considering a one-month vacancy period equates to a loss of 8.3%, which typically is close to, if not more than, the yield that most properties produce annually, concessions like these are not only smart business for the investor but a win-win for all parties regardless of the market.
Research among the nearly 24,500 Dubai apartments and villas advertised for rent on propertyfinder.ae shows that just about one in six specify the number of cheques required. Out of those that do, 1,842 listings state that tenants can pay in four cheques. A further 925 mention one cheque, 1,052 refer to two cheques and only 140 will permit twelve. About a decade ago, putting down an entire year’s rent upfront was the norm and those tenants whose employers did not offer such advances were often forced to borrow from the bank. However, greater competition among landlords helped ease the burden on tenants forming a new norm of two-three cheques, with four cheques also being common.
Chief Executive Officer, Keller Williams Real Estate
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