Dubai rents decline by 5% in second quarter, says Cavendish Maxwell

‘Tenant’s market’ persists while rising supply impacts residential sales prices

Dubai residential rents declined at an average of 5% year on year in Q2 2018 as 'tenant's market' persists, said Cavendish Maxwell. Sarah Dea / The National

Residential rents in Dubai dropped by an average of 5 per cent year-on-year in the second quarter of 2018, and declines are expected to continue in the second half of the year as the ‘tenant’s market’ persists due to rising supply and a fight for affordability, a report said.

“Landlords are offering incentives such as flexible payment terms, rent-free periods and in certain cases are reducing lease rates for existing tenants  to keep units occupied amid low demand,” said consultancy Cavendish Maxwell’s Q2 Dubai market update, compiled using figures from its Property Monitor database.

Operating expenses continued to rise and net realised yields compressed in the majority of locations across Dubai over the last twelve months. “Thus, investors need to factor in building quality, occupancy levels and expected supply in the community to ensure relatively stable rental income,” the report added.

UAE property markets have slowed in recent years in the wake of a three-year oil slump. Rental and sales prices have declined steadily over the period, pressured by new supply coming to the market, muted demand and reductions in housing allowances, which have crimped consumer purchasing power.

Prices are expected to drop throughout the year, albeit at a slower rate as market sentiment rebounds on the back of an improved economy and higher oil prices.

According to Cavendish Maxwell’s report, annual rental declines in Dubai in the second quarter were most pronounced in International City, The Greens, Discovery Gardens and Al Furjan, which registered 12-month changes of more than 6 per cent. Rents dropped by an average of 2.5 per cent quarter-on-quarter, the report said.

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The majority of rental agreements for residential properties were based on the traditional one-cheque agreement, accounting for 38 per cent of the total. However, this reduced by 12 per cent compared to the previous quarter as landlords become more flexible. Rent paid in four cheques increased by 6 per cent over the quarter, according to Property Monitor’s database of rental contracts.

On the sales side, residential prices declined by an average of 2.9 per cent year on year and 1.1 per cent quarter on quarter, the report said. Villas in The Springs and Victory Heights saw the steepest annual declines, of 4.5 per cent and 4.2 per cent, as well as apartments in Jumeirah Lakes Towers (4.5 per cent), Al Furjan and Jumeirah Village Triangle (4.4 per cent).

“Buyers continue to be spoilt for choice in the off-plan market thus forcing developers to offer special incentives such as aggressive payment plans, fee waivers and others to differentiate their projects,” the report said. “Secondary market activity remains concentrated in buildings and communities where investors are expecting relatively stable yields and end users are replacing rental outflows with mortgage payments.”

An estimated 3,700 residential units were handed over in Dubai during the quarter, and off-plan sales accounted for 58 per cent of the total, according to the report. In the third quarter, the majority (52 per cent) of upcoming supply is concentrated in Business Bay, Jumeirah Village Circle and Downtown Dubai. “Increasing handovers will continue to impact rents in most locations across Dubai,” it said.