It pays to downsize your home

Prices may be dropping at the higher end of the Dubai and Abu Dhabi rental markets, but rates in more affordable areas are on the increase as tenants downsize to save on rent.

Jo Peacock and her husband Nathan Sadler downsized from a two-bedroom villa apartment to a one-bedroom apartment in Dubai. Mona Al Marzooqi / The National

When cuts in the household budget have to be made, many families in the UAE decide that space is one cost worth compromising on. That was the case for teacher Jo Peacock and her husband Nathan Sadler, an assistant principal, who downsized from a two-bedroom villa apartment in Dubai’s Layan community into a one-bed apartment in Remraam two years ago. Since then, space has become even tighter as Ms Peacock had a baby two months ago, but the couple still feel it was worth the move, for the Dh35,000 they’re pocketing each year in rental savings.

“We are very happy in our place,” says Ms Peacock, a 32-year-old Briton. “Downsizing has allowed us to save a chunk of money we wouldn’t have been able to in our previous place, maybe a little more because bills are also a lot less. The money will go towards buying a property for ourselves in the future.”

The latest Dubai Property Review by property consultancy Asteco for the third quarter this year reveals that budget-conscious tenants are increasingly downgrading to smaller units, or relocating to cheaper communities to get better value for money. Apartments in the more affordable Jumeirah Village Circle and Dubai Sports City have seen rates increase by 2 per cent and 3 per cent over the year. The latter also recorded the highest growth this year, averaging 13 per cent as demand for affordable housing increased. Meanwhile, the mid-to-high end segment in Dubai has seen a decline, with Business Bay recording a 5 per cent drop.

“Although rental rates have remained relatively stable this quarter, we’re seeing a definite shift to more affordable areas where rents are cheaper,” says Asteco’s managing director, John Stevens.

Asteco’s third quarter report for Abu Dhabi shows a similar pattern for the capital. Despite the introduction of a 5 per cent cap on residential rent increases this week by the Department of Municipal Affairs and Transport, villa rents are down on average by 2 per cent from the previous quarter. Affordable and mid-range segments have only dropped moderately in comparison, by Dh5,000 on average since the first quarter of the year, reflecting increased demand for cheaper housing. “The ongoing job cuts across various industry sectors [in Abu Dhabi] and the reduction of staff housing allowances continues to negatively affect demand, with a number of tenants opting to downsize or move to more affordable units,” Mr Stevens says.

Enquiries to the property portal propertyfinder.ae also reflect a downsizing trend in the UAE. “If we compare enquiries for apartments and villas from January to November, we notice a significant shift towards smaller dwellings,” says propertyfinder’s chief commercial officer, Lukman Hajje. “In January, studios and one-bedroom apartments represented 41.3 per cent of total enquiries on propertyfinder.ae, while 4-bed plus apartments represented 6.7 per cent. By November we noticed a sizeable shift towards dwellings with less bedrooms. Studios and one-beds combined represented 55.8 per cent of total enquiries while four-bed plus apartments had reduced to just 1.5 per cent.”

Ahmad El Cheikh, a Lebanese telecommunications worker, decided to rent the smallest studio flat he could find in Abu Dhabi when his company announced a cut in salaries.

He chose Reem Village, a small but expanding complex of 400 square feet studio flats on Reem Island, with parking provided at an adjacent lot.

While he had previously paid Dh10,000 a month for a hotel room, his new flat costs just Dh2,900 per month.

“The company I work for suddenly told us they were reducing our salaries,” he says.

“Reem Village is very cheap, but you need to put your name down on a waiting list – then maybe they’ll call you, maybe they won’t. I had to wait for three months before a flat came up.”

Mr Cheikh was offered the choice of a one-month, six-month or one-year contract, and opted for six months. What he saves in rent and contract flexibility, he says he compromises on when it comes to space. “As I told my colleagues at work, I live in a container,” he says. “But for someone like me, living alone, it’s comfortable. The AC is a bit too noisy but its OK. I chose a room with two beds, which is better, so I can have guests when I want to.”

The move to find cheaper accommodation is hardly surprising, given that the UAE’s rents are among the highest in the world.

According to CBRE’s latest Global Living Report, average monthly rents in Abu Dhabi now stand at US$2,558 (Dh9,388), exceeded only by those in Singapore and London. Dubai came eighth in the global poll, with monthly rents of US$2,160 (Dh7,927) a year.

The trend towards smaller dwellings could be viewed as a reflection of a more cautious market and recent lay-offs relating to record low oil prices at the start of the year, Mr Hajje says. But they do not paint a full picture. “No doubt people are looking for smaller dwellings, but a greater percentage are deciding to buy as opposed to rent them,” he says. “Buyer enquiries represented just 25 per cent of total enquiries in January when oil hit a 14-year low at $26 per barrel. In November, buyer enquiries represented 30 per cent of total enquiries.

This increase in buyer activity is further evidenced by our mortgage consultancy arm, mortgagefinder.ae. It disbursed 92 per cent more in total mortgage value in November compared to January.”

One resident who recently decided to buy instead of rent is Joseph Ramos, 34, from Florida. He was paying Dh7,000 a month for his two-bedroom villa in Al Ghadeer, on the edge of the emirate of Abu Dhabi, and was told in January that his rent would be increasing by Dh5,000 a year.

It prompted him to downsize, not to an apartment but to a 16-metre sailboat. “It wasn’t a big rent increase, but it was the incentive I needed,” he says. “I bought my new home, which can sleep up to eight people, for Dh650,000. It’s an investment. Once it’s paid off, it’ll save me rent money.”

Mr Ramos, an aircraft mechanic, has lived on the boat, moored at Yas Marina, since February. He says he generally enjoys life on the water, but there are downsides.

“My air conditioning pump went out for a week in the middle of the summer – it was just unbearably hot,” he says. “There’s no insulation so during the daytime, the outside of the boat gets hot from the sun and that transfers the heat to the inside.”

Mr Ramos pays an annual mooring fee to Yas Marina, based on the size of his boat. For 51 weeks of the year, excluding the Abu Dhabi Grand Prix week, it’s Dh27,000, but with F1 week included, the option Mr Ramos chose, it’s Dh36,000. Mr Ramos also saves on utility bills, paying Dh100 every three months.

Another option, convenient for those on short-term contracts, is a hotel apartment. Teacher Karen O’Collins has lived in three hotel apartments over the six years she’s been in Abu Dhabi. The American currently lives in the Tourist Club area. While at about Dh7,500 a month, her pad is not cheap, she enjoys the convenience it offers.

“When I first came to live in Abu Dhabi, I was put in a hotel apartment, then they gave their teachers the option of going into their apartments instead,” says the 46-year-old, whose accommodation is paid for by her employer.

“But I chose to stay in the hotel apartment, because it’s super-convenient. I don’t have to worry about paying for electricity, and the internet and the landline were already hooked up. I also didn’t have to put down a deposit, so when I leave, the exit process is much easier. And they come furnished.”

Downsizing is also an attractive option to families paying for increased school fees with limited budgets.

The Dubai-based property developers Shaikhani Group recently announced the launch of the “family home concept” in its latest project, Gardenia Residency at Jumeirah Village Circle, that includes a kid’s room within a “one-bedroom hall” apartment, effectively creating two bedrooms for families.

“The real estate market is shifting towards the mid-market segment and towards smaller units, where the real demand is picking up,” says Shaikhani Group’s managing director, Mahmood Shaikhani. “As a developer, we have witnessed this shift for some time. That’s why we have been developing properties for the young, trendy and upwardly mobile small families and couples who don’t need large premises to live, but a small, cosy and elegantly styled smaller family home.”

One mother who made a dramatic shift is Pakistani-Australian mother-of-four, Usha Mitwali. She moved with her children, aged between nine and 17, from a five-bedroom villa in Khalifa City to an Dh80,000 one-bedroom flat in Mohamed bin Zayed City. “I’m saving maybe Dh50,000 a year in rent, which all goes on my kids’ school fees,” she says. “I had to find a way to pay the bills. Me and my daughter squeeze into one bedroom. There’s a sort of half-bedroom area for two of my sons, then the eldest sleeps on a fold-out bed in the lounge.”

Ms Mitwali says she doesn’t miss the space. “I’m one of those people who likes everyone to sit close together anyway. Its cosier,” she says. “Even in our massive villa, my kids would always be sitting with me.

If you lose something then it’s easier to find in a small apartment. This flat’s easier to clean too, and it forces me not to buy stuff that I don’t need.”

However, not everyone feels that way.

For Ms Peacock, who has taken a year off work to spend time with her baby, life is a little more cramped. “When it was just the two of us, we didn’t miss the space, except when we had guests,” she says. “We’ve bought a sofa bed for them. But now we have a baby. Space is more tight.”

Follow us on Twitter @TheNationalPF