Dubai rents cool but bad news around the corner

The era of sharp rental increases that has plagued Dubai appears to be drawing to an end.

Rents in Dubai have stabilised since the turn of the year.

DUBAI // The era of sharp rental increases that has plagued Dubai residents for years appears to be drawing to an end, a new housing study indicates. Average residential rents climbed 22 per cent in the 12 months to June this year, a modest rate by UAE standards, but have been mostly stable since the turn of the year, according to a report by Asteco, one of the UAE's largest property services firms.

The figures also confirm that Abu Dhabi is challenging Dubai as the country's most expensive city to live in. The average annual rent for a good quality one-bedroom apartment in the capital was about Dh127,200 (US$34,630) in June, compared with Dh134,000 in Dubai. But when Dubai's two most expensive places to live - the Palm Jumeirah and The World Trade Centre - are taken out of the equation, the figure drops to Dh123,000.

Andrew Chambers, the managing director of Asteco, said the slowdown in residential rents in Dubai, first observed at the turn of the year, continued from April to June. "No significant residential rental increases were observed over the past three months," he said. Ali al Rahma, the chief executive of the real estate portal Eqarat.com, said the trend was linked to a greater match between housing supply and demand. But he warned it might only be a temporary phenomenon.

"From January, rents will go up again," he said. "About four million square feet of commercial space will be completed between September and mid-2009, people will move to Dubai to work, and this will put renewed pressure on housing supply. Dubai is like a running horse. This is a period when it is resting, but it will run again." Although the city's rents have stabilised since January, the year-on-year rental hikes in some neighbourhoods were still sizeable, the report indicated.

Sheikh Zayed Road recorded the city's highest annual rental growth at 51 per cent. Bur Dubai and Ghusais followed with 42 and 40 per cent respectively. Despite its heavy traffic, Bur Dubai was still popular with residents thanks to a variety of conveniences, transport options and entertainment. Occupancy rates were tight at 90 to 95 per cent. "Owing to its relatively affordable rents, most tenants tend not to move out," said Mr Chambers. "This results in a shortage of reasonably priced units, which pushes rents up further. With availability coming only from new buildings, landlords are dictating higher prices to desperate home seekers."

David Hammett, a British expatriate, said he was forced to commute daily from his shared apartment in Bur Dubai to Internet City. It was "not financially feasible" to move to an area closer to his office, he said. "Rents in Barsha and the Marina are at least two to three times what I currently pay and I'm not willing to take that kind of hit on my disposable income," Mr Hammett said. "And even if you work in Bur Dubai and want to move into my building now as a new tenant, your rent would be at least 50 per cent more than what I pay.

"The result is that people are forced to live far away from where they work, thus compounding the already dire traffic situation on Sheikh Zayed Road. It's a ridiculous state of affairs." Other areas such as The Greens, Satwa, Muraqqabat and Garhoud saw rental growth of 10 to 15 per cent over last June, but only a small shift since January. Dubai's lowest rents were at International City and Deira, where rates for studios started at Dh40,000.

Luxury properties at Downtown Burj Dubai, Sheikh Zayed Road, Jumeirah Beach Residence and Dubai Marina commanded the highest rates. Three-bedroom apartments around the World Trade Centre area were the most expensive, costing Dh410,000 to Dh590,000 per year. The annual rent for a one-bedroom flat in Dubai Marina ranged from Dh100,000 to Dh160,000 in June, similar to rates throughout Abu Dhabi city. According to several analysts, people are commuting to Abu Dhabi from The Marina in increasing numbers.

While Dubai apartment rents have stabilised this year, the cost of renting a villa continued to climb. The average rate increased 20 per cent from April to June, according to the study. "The increase in villa rents is the direct result of continuing undersupply of villas and townhouses compared to growing demand from Emiratis and well-earning expatriates," said Mr Chambers. "Several villa projects in Dubailand, Dubai Waterfront and Jumeirah Golf Estates will help ease this undersupply within the next two years."

@Email:[e-mail] To see how rental rates have changed across Dubai over the last year, visit our interactive map at www.thenational.ae/onlinespecial