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29 March 2024

Dubai, Abu Dhabi rents to decline, Sharjah rising

Published
By Parag Deulgaonkar

Rent rise in Abu Dhabi is set to slow down in the coming months, while rental value growth rates have slowed significantly in Dubai’s upper end of the market, according to Cluttons.

“We expect affordability to remain central to the rental value growth equation, with rent rises likely to slow further in the coming months,” the real estate consultancy revealed in its annual “2014 UAE Property Report.”

“With an affordability threshold now clearly breached for many households, rent increases have already begun to slow and there is a growing tide of tenants who are seeking cheaper accommodation in areas perceived to be less centrally located and therefore more affordable,” the consultancy said.

This tenant behaviour, in fact, has started to impact on rents, with a rise of mere 0.9 per cent being recorded during the second quarter; down from 1.9 per cent in the first quarter; leaving rents 8% higher than this time last year. During the first half, rents have risen by just 1.2 per cent on average across the city’s freehold areas.



According to the report, Reem Island and Al Reef villas saw rents falling 5.6 per cent and 1.3 per cent, respectively, between January and June 2014, while Al Bandar in Al Raha Beach was the best performing submarket during the first half, rising 3.6 per cent.

Dubai

As for Dubai, Cluttons says the lettings market has continued to eke out marginal growth in the first half.

“Affordability”, however, remains central to the performance of the lettings market, the consultancy said, adding, “Affordability threshold has now clearly been breached in many areas. This has been particularly noticeable at the upper end of the rental market with rental value growth rates slowing significantly.”

Freehold areas registered a 1.4 per cent rise in rents during the second quarter, as against 1.5 per cent increase recorded during the first quarter. The total growth during the first half remained under 3 per cent.



According to Cluttons, the rental value growth in real terms has remained relatively flat, after inflation (2.7 per cent) over the same period is factored in. Despite this, average rents remain 8.4 per cent ahead of Q2, 2013.

Villas for instance experienced a marginal 1.1 per cent rent increase during the second quarter. However, most of the growth was delivered at the lower end of the villa market, with high end (0.6 per cent) and mid range villas experiencing almost no change in asking rents, the report revealed.

Emirates 24|7 reported this month that the latest update of Real Estate Regulatory Agency’s, the regulatory arm of Dubai Land Department, rent index reveals rents to have either remained stable, or have declined in some freehold communities.

(Read: Rents falling in Dubai freehold communities; Click for where)

Sharjah


Despite the strengthening supply pipeline, Cluttons do not forecast the upturn in fresh stock to dent the rate of rental value growth.

Rents are up 5.7 per cent in Q2, following the 10.8 per cent rise recorded in Q1. Overall, lease rates rose 17 per cent in the first half.



“This is primarily due to the exceptionally strong underlying demand. Furthermore, the most critical component to unlocking any new supply is the ability of developers to secure utility connections through SEWA, which can easily stall the handover of schemes by six to 12 months, thereby inadvertently stemming any surplus flows of fresh residential stock,” the report states.

As the year progresses, Cluttons expect the spike in complaints with the Sharjah Rent Committee to persist, as the growth in rents is not expected to ease in the near term.

The market will remain in favour of landlords in the near to medium term as tenants are opting to remain in their current accommodation, rather than relocating in order to contain costs, the report states.

Sharjah Municipality has said that landlords are free to fix a new rent post the three-year rent contract with a tenant, but are not allowed to raise rents for two years post the first increase.

(Read: Sharjah landlords can set new rent after 3-year lease contract is over)

(Read: No rent hike for two years after first increase in Sharjah)