Rents in Sharjah's most popular areas have increased by more than 15 per cent over the past six months as Dubai residents head north in search of more affordable housing.
They could climb another 15 per cent in the second half of the year, brokers say.
According to the property broker Cluttons, average rents for one-bedroom flats in Sharjah's most popular areas such as Al Majaz, Al Nahda and Qassimiya rose from an average Dh24,000 in October last year to around Dh28,000 in April, an increase of 17 per cent.
The broker said that although average one-bedroom apartment rents now stand at Dh28,000 to Dh32,000 a year, some landlords of newly built flats are asking for rents approaching those charged during the 2007 property boom when, according to Cluttons, they stood at around Dh40,000.
It said asking prices for one-bedroom flats at the recently opened Arenco Golden Sands Tower in the Al Nahda area start at Dh41,000 in one annual payment cheque.
"We are a little bit sceptical about some of the rents being charged but all the landlords we've been speaking to are looking to increase rent," said Shane Breen, associate director at Cluttons in Sharjah. "Landlords are taking advantage of higher rents in Dubai and tenants are paying."
"Residential rental demand has increased in prime areas of Sharjah due to people moving from older, poorly maintained buildings to the new supply that has come on line," said John Stevens, the managing director at Asteco Property. "Rental rates for a mid-end two bedroom apartment are around Dh38,000 to Dh45,000 a year, whereas a two-bedroom apartment in a high-end building would rent for approximately Dh60,000 to Dh75,000."
Sharjah was hit hard during the global financial crisis in 2008. Rents and property values fell by half and a glut of construction projects stalled. Many residents who had moved to the emirate after being priced out of Dubai during the property boom relocated back to Dubai as rents fell nationwide.
Mr Breen said that the rental increases were prompting renewed interest from GCC purchasers, which has pushed yields down for existing housing blocks from around 11 per cent last year to between 8.5 per cent and 9 per cent.
"Investors are not looking to develop their own projects at the moment but we have seen a number of these people coming in and buying existing buildings," Mr Breen said. "What they want is income generating stock which is not so much of a risk to build and which are already connected to power supplies. In Sharjah getting a power connection can take years."
Few existing tenants are likely to be hit by the rent increases soon, because Sharjah Municipality offers tenants a protection period of three years from the start of a new lease with rates then moving to "market rate" on renewal for the fourth year.
Cluttons predicts that if rents continue to increase it will cause an increase in disputes between tenants and landlords via the rental committee hearings within the municipality.
However, Asteco's Mr Stevens added that Dubai tenants looking to move north in search of cheaper housing should also take into consideration the rising cost of commuting.
"The new Salik gates which are positioned on Al Ittihad Road, Al Mamzar and the Airport Tunnel may cause tenants who are currently residing in Sharjah and already thinking of moving to Dubai to make the move," he said. "Given the each-way cost of travelling through the toll versus the difference in rental rates between Sharjah and Dubai, it is probably unlikely to motivate the majority of commuters to relocate."
