Competitive Dubai rents still offer a better choice

In 2009, high rents in Abu Dhabi had pushed people working in the capital to seek homes at a lower cost in some areas of Dubai, such as The Gardens and Discovery Gardens, where a two-bedroom apartment was available for Dh85,000 a year against Dh180,000 a year in Abu Dhabi.

In 2010, even as rents drop in the UAE capital, Dubai rents remain competitive enough to offer people a better choice, according to a real estate analyst.

Ridha Musallam, Director-General of Truth Economic Consultants and an economic expert, told Emirates Business that the rent drop of 10 per cent inside the city and 40 per cent in the outer areas will not bring Abu Dhabi employees living in Dubai back before the end of next year.

Musallam said some big developers started to freeze their housing projects to avert a sudden and big retreat in rents. The three Etihad Towers were expected to be completed in June, but the project was stopped although 90 per cent of the buildings and supplies have been finished.

He said rents will inevitably return to the pre-2005 levels, and it is a big mistake to intervene in the supply-demand mechanism by making the market thirsty, because it is the emirate's economic development that will suffer by such manipulations.

Some 7,000 units inside Abu Dhabi, in addition to thousands more outside the city in areas such as Al Rahba and Al Samha, will enter the market in the next two months, the analyst said. He outlined two scenarios when this happens.

Most of the new housing units have been sold to investors who have to pay the remaining instalments. If they fail to do so, the developers would be forced to resell the units at a 50 per cent lower cost than the pre-boom prices.

If the investor pays the instalments through bank finance, he will be forced to lease the unit at a rent far lower than expected, or he will live in the unit and vacate the current residence, which will have to find a new tenant at a lower rent. In either situation, there will be a drop in rent.

Musallam believes Abu Dhabi will witness a drop in demand of up to 20 per cent during summer, as many expatriate employees send their families home during this season.

Follow Emirates 24|7 on Google News.