Residential property rents in Dubai fall as oversupply hits the market
Dubai’s rental real estate market is seeing prices fall as an oversupply sees landlords of new units undercutting market rates, a new report shows.
This strategy has seen rents fall by up to 38% in some of the emirate’s most popular residential areas, according to the latest data from real estate firm Landmark Advisory.
‘Tenants realise it is currently a renters’ market and want more value for their rental dirhams,’ said Jesse Downs, director of research & advisory.
She explained that some developers and landlords are slashing rents by up to 20 to 30% below market rates in order to achieve higher occupancy in newly handed over buildings.
Worst hit are those developments with ongoing disputes over maintenance charges and infrastructure delays. Nakheel’s development International City has seen a 38% drop in studio rents since June 2010, down to AED16,000 per annum from AED22,000.
In Dubai Marina, rents on quality two bedroom apartments have gone down 27% since June. Comparable units in Downturn fell by 6% in the same period, the agency said.
Landmark tracked three new Dubai Marina buildings in the three months from handover. Those with a competitive pricing structure achieved occupancy of 90% within three months of handover. In comparison, the building with high rates and a rigid pricing strategy remained 60% empty.
‘We estimate that average vacancy rates in Dubai are currently 15 to 18% but will increase to 19 to 24% by 2012. Even considering the Abu Dhabi commuter demand, it is clear that average rents in Dubai will continue on a downward trajectory,’ said Downs.
Villas in Dubai showed a slower rent decline with projects affected by ongoing maintenance issues registering the sharpest drop. Jumeirah Islands, a Nakheel development, witnessed an average drop in lower limits of 16% across all unit types, compared to a drop in the Meadows of 9%.
Downs said that recently handed over villa communities in Dubai have suffered severe price drops as many landlords have struggled to attract tenants to areas lacking basic amenities and infrastructure or near construction zones.
Meanwhile, Saudi Arabia’s Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud has warned that Dubai’s property market faces substantial further falls and will take several years to reach its bottom.
In an interview with Arabian Business he warned that over supply remained a huge problem in the emirate, which has seen prices crash more than 70% in some parts.
‘There are new buildings coming out, I think we have not seen the bottom in real estate in Dubai, there are years to come. I don’t believe you are at the bottom yet because more supply is coming,’ he said.
‘Prices have to go down substantially for demand to reach equilibrium with supply. Many land owners are holding their old prices. Someone has to give in. The price has to go down, substantially. It’s supply and demand,’ he added.
