UAE rentals poised to soften in 2016

Dubai / Emirates Business

UAE’s real estate sector is expected to soften further in 2016 due to the widening gap between the demand and supply ratio, says Chestertons, the international property agency. The company also stated that developers should consider projects within the ‘affordable segment’ to further support this sector.
“The industry should strike the right balance between demand and supply to strengthen the market this year. Residents in Dubai have shelled out a substantial amount on rents since 2011. However, rents have cooled in some parts of Dubai since the last quarter of 2015,” said Declan McNaughton, Managing Director, Chestertons UAE.
“With the oil prices plummeting, the real estate market in Dubai may, in all likelihood, undergo a squeeze on prices and rents in the short term. The correction will be more of a normal real estate cyclical downturn of 15 to 20 percent. However, a lot depends on the impact of the external macro-economic factors and also how the UAE economy continues to perform,” he added.
According to Chestertons, the price correction has been absorbed at different levels depending upon the location and type of property. There has been a correction between 8%-15% (YoY) in villa properties. This is partly due to the current price trend and also future supply that the segment is expected to see once projects such as Jumeirah Park, Villa Lantana, MBR City, Arabian Ranches (phase 2) are completed. The supply could potentially double by 2020 and residents are expected to move out from older communities to newer communities as they are completed.
“Revised rental rates by RERA are 10%-15% lower than current market rentals. We expect the rental correction to be higher in secondary locations as supply increases,” added Declan.
Declan further stated that, “The risk with regard to excess supply is difficult to quantify, however, the number of units developed every year are on the rise.
The residential property market currently faces the prospects of easing due to the upcoming supply factor and also the recent price correction in the industry. The market now needs to be closely monitored to avoid the challenges that it faced in 2008”.
“Approximately 18000 units were delivered and over 2000 villas were added in 2015 to the existing inventory. These units are expected to cushion Dubai’s rents that have soared since the last few years. Increase in supply will surely impact the market, particularly the new developments. The villa segment will also experience increased competition as more units are expected to enter the market by 2017,” added Robin Teh, Country Manager, Chestertons UAE.
According to Chestertons, the market is finding its own level now. Owners, who were asking for higher rents, are being advised to drop it further to ensure that their properties don’t remain vacant for long. Rental rates have mostly corrected across all areas, however, it is less noticeable within luxury properties. Luxury properties are still in demand and people who can afford them are still willing to pay the extra amount to move in to a posh locality with all the facilities.
“Due to the scarcity in land within the prime areas, the focus is now shifting to new growth corridors such as Dubai Land, Meydan and Jebel Ali. Peripheral areas or rather secondary areas such as Sports City and Green Community are being targeted to develop projects aimed at the mid to low income households. Therefore, we expect rentals in non-luxury to reduce further particularly in areas such as Jumeirah Village and Dubai Sports City,” added Teh.
“Dubai’s economy is expected to grow at an estimated 3.5 percent to 4 percent for the next few years. Other major industry events, such as the Expo, are expected to generate thousands of jobs during this period; the demand for housing and commercial facilities therefore is expected to grow significantly. Inventory levels may spike in the interim, however, they will not be excessive from a long term perspective. Stability in the demand and supply equation will be the new focus to achieve affordable housing,” concluded Teh.