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22 February 2024

Dubai rent alert: Why residential rents will fall this year… and 2017

By Parag Deulgaonkar

Residential rents will fall in Dubai in 2016 and 2017 if “all housing units are delivered on time,” according to Asteco, real estate consultancy.
“Rental performance in 2016 will be highly dependent on the timely delivery of supply.

“Assuming the anticipated supply is handed over on time, rental rates are likely to come under pressure over the course of not only 2016, but also 2017 onwards,” the consultancy said in a new report.
A total of 13,500 apartments and 800 villas were delivered in 2015 while a further 22,000 apartments and 7,700 villas are scheduled to be delivered this year.
The consultancy said that the drop in rates will be beneficial to tenants who will be able to negotiate better terms upon contract renewal.  

It will also assist in unlocking demand from some of the many households sharing housing accommodation who could now potentially afford their own.
As for property owners, adjustments in terms of rental expectations and payment flexibility will have to be made.
‘Increased supply, better quality, well managed or good-value-for money properties will be able to achieve higher occupancy levels than others,” the consultancy asserted.
Last month, JLL, a real estate consultancy, said that the UAE was unlikely to see oversupply of housing units and commercial space in 2016, with residential rentals softening in the short term.
It, however, said prices and rentals are likely to increase again, perhaps as soon as 2017, as the UAE continues on its path to becoming a more mature real estate market.
Dubai developers are expecting delivery of 26,000 units this year, while the figure stands at 10,000 units in Abu Dhabi, JLL said.
In its report, Asteco states that the trend of falling prices, which began in 2015, is expected to continue during the course of the year, but at a more moderate pace as rates in several developments have already declined sufficiently to encourage deals concluding.
With several of the previously launched off-plan projects coming closer to completion, it expects interest for these properties, leading to higher transaction levels.
Smaller units will be preferred to larger ones, with stable transaction levels for studio and one bedroom apartments and smaller one-, two- and three-bedroom townhouses and villas.

Sales for large, premium units are, however, are likely to remain subdued during the year, driven by few buyers.
The US Federal Reserve’s raise in interest rates in December 2015 could lead to slightly higher finance costs and thus increased lending costs for end-users, the consultancy said.