Dubai home rents may be weakening

After rising steadily for six years, residential rents in Dubai are showing signs of easing.

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After rising steadily for six years, residential rents in Dubai are showing signs of weakening as more properties come on the market and demand eases with the slowing economic growth. However, in Abu Dhabi brokers say rents are still increasing. Dubai rates could see a correction of up to 30 per cent by the end of the first quarter next year for high-end properties in frontier developments, according to several agents.

Rents have already fallen in the high-end apartment and villa segment, with demand being hit by businesses tightening staff accommodation packages. However, demand for rented accommodation in the middle-income segment remains strong. "The correction has already started and we can see that in new leases in Jumeirah Beach Residences, Dubai Marina, Palm Jumeirah and Jumeirah Lake Towers," said Nayir Hussein, the general manager at Zenath Real Estate.

"We are expecting a 25 per cent to 30 per cent correction in rentals, especially in the high-end market segment," he said, adding that the supply of new homes offered for rent because of a scarcity of buyers would increase pressure on the segment. The softening in Dubai's rental market follows a drop in property sales prices in the past three months, particularly in luxury developments. The value of apartments and villas has fallen by as much as 40 per cent in areas such as Downtown Burj Dubai and Palm Jumeirah, triggered by the liquidity squeeze and the freezing up of the mortgage market.

The most significant declines in rents have been in Downtown Burj Dubai, a development by Emaar Properties, and Palm Jumeirah, the first of Nakheel's Palm trilogy. Until June this year, a waterfront villa on Palm Jumeirah could fetch between Dh340,000 (US$92,550) and Dh360,000 a year in rent, but would now collect Dh240,000, according to Ashfaq Rasul, the sales manager at Excelet, a UK-based property leasing and mortgage advisory firm. Landlords in Downtown Burj Dubai, who were asking between Dh180,000 and Dh200,000 a year to rent a one-bedroom apartment in September, are now willing to take the same amount for a two-bedroom apartment.

Villas in Emaar's Arabian Ranches development have also been hit, with the rate for new leases dropping by between Dh50,000 and Dh60,000. At Jumeirah Lake Towers, a three-bedroom apartment that was being rented for Dh250,000 in September is now going for Dh200,000, according to Mr Rasul. "It is good in a way that Dubai is becoming affordable once again. Prices were too high to begin with, and landlords are realising they can't have runaway rates any more," he said.

Midsized apartments and villas in established residential areas such as Al Barsha and Umm Suqeim have been less affected by the decline, added Mr Rasul. "Some properties have dropped more than the others and I don't think rents in established areas like Umm Suqeim or Al Barsha could fall as much as Downtown Burj Dubai due to their proximity to major business centres." Rents in areas such as Karama - one of the oldest districts in Dubai - and Nakheel's International City, which are both areas primarily considered as mid-income homes, are holding up and property agents do not see a major change in rental patterns in these areas.

"Further job cuts and additional supply next year could change the rental patterns in the midsized rental market, but for the moment it is holding," said Mr Rasul. In Abu Dhabi, demand still outstrips supply in the rental sector and rates had held steady or increased, brokers said. "Abu Dhabi is a very different animal. It has got a huge shortage of ready accommodation," said Vincent Easton, the head of sales at Sherwoods. "Abu Dhabi rents are holding up very strongly and are still increasing."

Supply of rental accommodation has increased as property sales have declined sharply. "Owners are stuck between a rock and a hard place," said Sujeeva De Silva, a property consultant with Better Homes. "They realise they can't sell the properties for another year if they want to avoid significant losses, and yet they can't afford to keep apartments empty for long as there are monthly instalments and service charges to be paid."

Mr De Silva added that there had been a 70 per cent drop in the number of properties sold by Better Homes alone in the past three months. He estimated that a large number of properties would come back to the rental market.. * additional reporting by Nathalie Gillet