Dubai realty expert sees 8% rent decline
Analysts remain split about whether the era of lower rents is over
Published: 10:36 June 21, 2016
Cleofe Maceda, Senior Web Reporter Gulf News
Dubai: Property analysts in Dubai remain split about whether Dubai’s real estate market is already out of the woods and the era of lower rents is over.
According to a recent analysis, it is a bit early to rule out further declines this year, given that there is still little activity in the residential sector amid jobs slowdown and low oil prices.
Jesse Downs, managing director of Phidar Advisory, argued that softening demand will continue to put pressure on residential rents to drop to more affordable levels this year, giving some relief to tenants who are still spending too much of their income on housing.
Downs said they expect average rents to fall by approximately 8 per cent to 10 per cent over the next three months, with some areas forecast to post “even higher declines.”
“The rent correction will continue likely for another 12 to 18 months. We expect to experience a sharper rent decline this summer followed by a period of more gradual rent declines and, then, eventually, stabilisation in mid to late 2017,” Downs said.
“These rent declines are caused by softening demand, especially in mid-high to high income bracket, a consequence of the current economic situation which has increased job losses and slowed new job creation,”Downs told Gulf News.
“Rent declines will likely accelerate in the summer due to the seasonality of rent contracts, especially for households with children in school.”
Downs’ forecast runs contrary to recent analysis by other market experts that the market is at the trough stage and nearing recovery. Consultancy firm ValuStrat said that based on their price index for the month of May, there is now a “clear trend of a plateau” in residential prices.
Last month, ValuStrat’s overall price index registered 98 points, showing “no significant” change in values when compared to the previous eight months and down one per cent when compared to the same period last year. “This marks a continuation of evidence of price stabilisation,” said ValuStrat.
According to the latest analysis by Bayut.com, a property portal in Dubai, average apartment rents in Dubai posted a 1.57 per cent increase in May, when compared with the rental values in April. The average rent for studio apartments rose to Dh57,000 from Dh56,000 a year.
One-bedroom apartment rents increased by 1 per cent to Dh95,000, while rents for 2-bedroom flats remained stable at Dh149,000. Four-bedroom flats aren’t getting any cheaper, either, with rents increasing from Dh294,000 to Dh321,000.
Downs said that Dubai’s property market is a reflection of global and regional trends. With employment levels also slowing down in other parts of the globe, it is normal to expect the same for the domestic market.
“In some respects, this reflects global trends – for example, banks are cutting jobs worldwide and this has been happening in Dubai, too. For other sectors, this trend is driven by the delayed impact that a low oil price has on regional liquidity and inevitably on the region’s hub: Dubai,” she pointed out.
“However, this is not a bleak projection, it will have positive impacts. Housing costs are typically 35 per cent to 40 per cent or more of household spend, so bringing down this cost can have a significant impact on the cost of living in Dubai, which makes it easier for businesses to retain employees and create jobs. From a household’s perspective, spending less on housing means more disposable income, which can help other sectors.”
Standard & Poor’s Rating Services had earlier said that the UAE real estate market in general is not showing any signs of market improvement yet. It said that the market will continue to face pressure from declining oil prices and softening of hiring and business activities.