Will tenants head back to Northern Emirates?

Rent increases across Dubai is likely to drive budget conscious tenants to relocate to the Northern Emirates, where one can lease a two-bedroom apartment for the price of a studio in Dubai.

Asteco Property Management said on Wednesday that the affordability factor may drive Dubai residents to move base to Northern Emirates.

“This continued rise in rents could herald the start of a flight to affordability for budget sensitive Dubai residents, who may well consider relocating to Sharjah, Ajman or further afield in the Northern Emirates,” John Stevens, Managing Director, Asteco, said in its first quarter report on Dubai real estate market.

Rajni Kumar, who was renting a studio apartment in Discovery Gardens, is moving to Sharjah, primarily because his landlord hiked his rent by Dh10,000.

“I was told by my landlord that he would extend my lease only if I paid Dh48,000 per annum (pa) for the studio. When I objected he pointed out that I had signed the lease with a clause to vacate the apartment.”

Kumar admitted that he wanted to take the matter to the rent committee, but decided against it at the last moment.

“We took the decision to move to Sharjah where I got a two-bedroom apartment for Dh42,000,” he added.

Rents in Sharjah have increased, but the pace has been far slower than what has been seen in Dubai.

According to Asteco, apartment and villa rates rose 5 per cent and 3 per cent, respectively, in the first quarter, but the consultancy believed “further rent increases are likely to be unsustainable and move force relocation.”

On Monday, JLL, a property consultancy, had said as rent values continue to rise in Dubai's established communities, tenants are likely to relocate to more affordable areas within Dubai, with some moving to the neighbouring Northern Emirates.

However, HSBC Global Research, in a recent report, said that Dubai will see a supply of 90,000 new units by 2018, but the market will absorb – fairly easily — the new supply even if the population grows less than 5 per cent per year.

“We believe that we have not yet reached the peak of the cycle, and that the market can continue to absorb the expected supply additions over the next few years, even at a population growth rate below 5 per cent,” the bank said.

Data released by Dubai Statistics Centre shows non-labour population jumped by over 7 per cent in 2012 and 2013, while the number of households grew by 7.6 per cent in both years.

Where rents jumped the most?

The best performing rental areas (read: area where rents rose the maximum) were International City (11 per cent), Jumeirah Lakes Towers (11 per cent) and Dubai Marina (10 per cent).

One-bedroom apartments in the three areas (mentioned above) were currently leasing for rental rates of up to Dh50,000 pa, Dh105,000 pa and Dh140,000 pa, respectively.

In the villa segment, the Springs community topped the list, with rents rose 13 per cent to Dh220,000 pa for a three-bedroom villa.

Dubai has introduced a rent slab that allows landlords to increase rents for existing tenants between 5 and 20 per cent, with tenants checking the increase through a rental calculator available on the Dubai Land Department.

Prices cooling down

Asteco claimed sales prices had “slowed down to more moderate growth levels in the first quarter following a spike in prices, after the Expo 2020 announcement at the end of 2013.”

Apartment and villa price sales prices stabilised at three per cent and six per cent growth respectively.

“There were significant increases in unit prices in Q4 2013 following news of Dubai’s Expo 2020 win and we saw deals flounder as sellers with genuine offers decided to wait in anticipation of further growth,” Stevens said.

“Transactions slowed down in established communities where surging prices went beyond what buyers were willing to pay,” he added.

Asteco said secondary residential areas were witnessing growth, attracting prospective purchasers seeking more sensible asking rates with potentially better growth potential.

Knight Frank, a UK-based consultancy, has predicted a 10 to 15 per cent hike in prices in 2014.

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