Falling rents trigger shift in population

Falling capital and rental values of properties in Dubai may lead to some key population shifts, say experts.

"We are seeing major population shifts from other emirates to Dubai as well as different areas within Dubai. This is primarily due to individuals looking to upgrade in terms of quality, location and size of apartments and villas," said Jesse Downs, Director of Research and Advisory Services, Landmark Advisory.

"Some of the patterns we are seeing now are massive shifts from Sharjah to International City and Discovery Gardens as well as from International City and Discovery Gardens to the Marina. We're also seeing individuals previously living in places like the Marina upgrading to villas in Jumeirah and Emirates Living," said Downs.

She said many of these individuals are on contracts from a year ago when prices were high in both Dubai and Sharjah. "So even six months ago a one bedroom in Buhairah Corniche was renting for around Dh65,000 to Dh80,000 per annum. Now tenants can get a large one-bedroom in Discovery Gardens for less than this," she said.

Downs added as prices continue to decline in Dubai, there is an increasing incentive for those working in Abu Dhabi to set up a home in or relocate to Dubai. The primary drivers are value or price and quality.

"In Abu Dhabi, quality is an issue as many of those new projects are not yet delivered, leaving the majority of current stock in older buildings. For example, three months ago you could find one-bedroom apartments in Electra Road in Abu Dhabi for Dh120,000 to Dh180,000 per annum. Generally, the apartments in this area are in older buildings with poor amenities and problematic parking. For these rates, it's possible to rent high quality, recently built two-to-three-bedroom apartments in Dubai Marina and Jumeirah Beach Residence or three-to-four-bedroom villas in Emirates Living or Jumeirah/Umm Sequim," said Downs.

Camilla Van der Merwe, Head of Leasing, Asteco Property Management, said people of all income brackets are finding alternative accommodation due to the drop in rental rates, the tenants are opting firstly to ask their landlords to renegotiate their contract.

"We have seen movement in the market not only because the household income has reduced, but mainly because the steps tenants are taking are merely preventative measures and a cost-saving initiative," said Merwe.

"If we take a family living in a two-bedroom apartment in Dubai Marina, the average rent they paid last year was approximately Dh150,000. Now they can rent a two-bedroom villa at Arabian Ranches for Dh130,000 or alternatively, they can rent a three bedroom villa in Mirdiff for Dh140,000. The benefits are that there is a bigger living area, larger outdoor area and savings of around Dh10,000 if you choose the Arabian Ranches option," said Merwe.

"In such cases, the relationship between landlord and tenant is already built and rather seeing the property vacant and the tenant paying heavy moving charges, renegotiation of contracts is beneficial to both parties," she added.

Peter Penhall, Chief Executive of Gowealthy Holdings, said open market rentals during the middle of last year recorded a swift adjustment in comparison to first quarter of 2009. "Rental opportunities are now available to the middle-income group with even Palm Jumeirah within reach," said Penhall.

"Also, the low-income segment is now able to consider affordable accommodation at International City and Discovery Gardens at entry level. The effect of this trend is that the end-users are now considering accommodation with improved standards and pleasant surroundings to satisfy their living needs. The medium-to-high-income groups now have a whole spectrum of available and premium residential accommodation, with a cross selection of prime properties at their fingertips," said Penhall.

According to Landmark Advisory, even prime locations such as Dubai Marina there are plenty of one-bedroom apartments available within an affordable range. "Alternatively, those looking for more space can find a two-bedroom in International City or pay 10 to 15 per cent more and move into a two-bedroom apartment in Dubai Silicon Oasis (DSO) or even, in some instance, a small two-bedroom townhouse. This often means shorter commute times and, therefore, more free time at home. It's important to recognise that the average household size in Dubai is still approximately four. So many people are here with their families. People would rather spend less time in their cars and more time at home, even if this requires paying a premium," said Downs.

According to Landmark, a studio in JLT that was going for Dh90,000 in the market last year is now approximately Dh50,000 to Dh55,000. Grade A one-bedroom apartment in Dubai Marina last year was about Dh150,000, while today that same unit is going for around Dh100,000.

Asteco said young couples are eager to move within the same area or building rather than shift entirely to another location as a cost-saving exercise. "Tenants in Discovery Gardens who took contract last year are vacating their premises and are approaching Asteco to provide them with units at market rate within the same area," said Merwe. "Long-term rental clients, who would normally renew their housing leases for another year, are moving up into bigger apartments/villas for the same or less rents than they paid last year," she added.

She added that with respect to people buying properties at a discount, whether it's a high-end property or affordable housing, the demand is clearly there as some prices have decreased substantially with some quality properties looking attractive.

"The mechanism, mortgage availability, in driving the sales market is limited, although signs of a revival in mortgage availability and lenders offering better terms are improving," said Merwe.

According to Gowealthy, property prices have seen a downward correction ranging from 30 per cent to 50 per cent from the peak in the middle of last year. "This has been seen across the spectrum… be it apartments or villas. Major catchment areas such as Burj downtown, Palm Jumeirah, Meadows, Jumeriah Lake Towers and Dubai Marina have seen this adjustment. The same has been the case for properties at the lower end of the scale such as the Discovery Gardens and International City."

"Slowdown in property prices has seen the increase of a new breed of buyers especially those with ready funds who support direct purchase. There has been a significant increase in what can be termed as cash-buyers and most of them are looking at properties for personal use, other than as an investment tool. This emerging section of buyers who are looking at medium to long-term participation in Dubai's real estate sector bodes very well for the market. It is a sign of a gradual return of buyer confidence," said Penhall.

He added cash buyers are not entirely dependent on mortgage and with a major selection of upscale properties ready for the pick, the level of interest and number of enquiries are on the rise. "This has also led to increased injection of funds into the market, which will help the overall system and increase the confidence of mortgage companies," said Penhall.

Sobhi Suleiman Agha, Chief Executive of The Specialist, also said the firm is now showing each of its clients more than double the number of properties compared to this time last year. "Earlier, we showed an average three to four properties before the client signed the tenancy agreement. Now the clients have definitely become more discerning and are looking for the best deal," he said.

Penhall said there have been positive movements in the mortgage sector as well since leading banks are now looking at offering around 75 per cent financing on completed villas, 70 per cent on completed apartments and 50 per cent on off-plan units. "However, due to lower mortgage levels, affordability is still an issue for non-cash purchasers. On the other hand with 40 per cent to 50 per cent personal equity, a mortgage buyer can buy a better property at lower overall financial outlays in comparison to 2008 prices," he said.

He added that there is definitely a better choice now although it is limited to ready properties. "The influx of such buyers who can afford to furnish the required down payment will also ensure that the property market now has more serious investors and home owners who are genuinely committed on a long term basis. As the market begins its slow turnaround, such buyers will gradually ensure the halt of distress sales fuelled by speculative buying," said Penhall.

"While the choices of payment plans for off plan properties discourages buyers with extended cash flows, the easing of financing options and growing liquidity will make things easier in the long term," he said.

Agha said the good residential units are moving very quickly, with location and price remaining the major decision making factors. "We have more than trebled their direct property rental listing to over 500 residential and commercial units to lease. Commercial demand with the exception of warehouses and labour camp accommodations have slowed down. The good residential units are moving very quickly, with location and price remaining the major decision making factors," said Agha.

"Businesses now prefer to rent in serviced offices than take a full office suite due to considerable downsizing caused by the global economic crisis," he added.

Agha, however said, Dubai is recording a significant decrease in demand for short-term contracts even though prices of them have dropped. "Traditionally, landlords who would only accept short-term rentals are now being more flexible and shifting their focus to long-term rentals in order to secure income. The most popular short-term rental area however continues to be Dubai Marina, closely flowed by Downtown Burj Dubai," said Agha.

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