We ask an expert about rent: From bargain suburbs to future predictions
When negotiating with a landlord it’s good to go in with some stats. So let us present you with some…
Remember how we told you recently that Dubai rents have gone down by 10.4% in 2017 so far?
Another real estate firm, Asteco, has confirmed the drop – they have said that in the past year rents have gone down by 14% in Business Bay, 12% in Downtown, 11% in Deira and 9% in International City.
Well, we wanted to find out more detail about where the city is seeing a decline, when rents will bounce back and where to go for bargains, and so we spoke to Faisal Durrani, head of research at property consultancy Cluttons. Here’s what he had to say…
ON HOW MUCH RENTS HAVE GONE DOWN: “Average rents declined by 9.9% last year… Q1 2017 experienced a further 4.7% decline in average rents. However, this does mask the fact that apartment rents held steady in the first three months of the year, while villas (-7.9%) registered their biggest quarterly drop in six years, leaving rents 17.7% down on Q1 2016. This behaviour has been underpinned by a lack of requirements for more expensive homes.”
IS DUBAI AN AFFORDABLE CITY WHEN IT COMES TO RENT? Average annual villa rents in Dubai are just shy of Dhs250,000, while apartment rents come in at just a little over Dhs100,000 per annum. Average annual household incomes in the UAE stand at Dhs200,000, which makes villas unaffordable for most households, while those that live in apartments need to spend on average of 50% of their earnings on accommodation. In Abu Dhabi, apartment rents are slightly higher at about Dhs150,000 per annum.
In London, which is often ranked amongst the world’s most expensive places to live, average rents in prime Central London for apartments hover around Dhs216,000, with annual incomes coming in at the same level as those in the UAE (Dhs200,000 p.a.). This positions London as being a far more expensive location, especially when you consider that rents for large houses are Dhs585,000 per annum.
ON WHERE YOU CAN FIND THE BIGGEST BARGAINS: International City, IMPZ, Discovery Gardens, Jumeriah Village Circle, Jumeriah Village Triangle, Sports City, JLT, and apartments in DubaiLand offer some of the most affordable accommodation in the city, with rents for studios standing at roughly Dhs31,000 p.a., rising to Dhs70,000 p.a. for a three bedroom apartment, on average.
ON HOW SUPPLY IS AFFECTING SOME SUBURBS: The constant stream of new home launches over the last few years continues to trickle onto the rental market in the form of buy-to-let properties, which is creating challenges in some locations. At Arabian Ranches for instance, average annual rents sit between Dhs170,000 to Dhs220,000, translating into a gross yield of about 5.5% to 6%. The nearby recently completed Mira villa community, which consists of 3-bedroom townhouses, has seen in excess of 1,200 units handed over in the last six months, acquired largely by the residential investment community. This newly handed over stock is now available for rent between Dhs120,000 to Dhs140,000 per annum, positioning it as a cheaper alternative to Arabian Ranches.
Tenants are aware of the burgeoning rental supply levels and are taking advantage of conditions by seeking out the best perceived value for money. In this instance, rents at Arabian Ranches are already coming under pressure and within the Mira community itself, landlords are competing with one another for a limited pool of tenants, which is also forcing rents downwards. For now, gross yields at Mira hover between 6.5% to 7%, making it an attractive location for buy-to-let investors and landlords.
WHEN WILL RENTS BOUNCE BACK (AKA, SHOULD WE MOVE NOW OR WILL IT GO DOWN EVEN MORE): “While the short-term prospects appear relatively subdued, our view is that the rental market’s fortunes remain tied to the looming 2020 World Expo. At this stage, the mega event is one of the primary upside risks to our outlook. We know from experience that the lag between the take up of office space and the subsequent impact on the residential rental market is usually six to nine months. Construction contracts worth Dhs11 billion, linked to the Expo, are expected to be announced throughout the course of 2017, driving up the rate of job creation and tenant demand in its wake, but this is not expected for another two to three quarters at least.
It is our expectation that rents will continue moderating during 2017, with an average decline of 5% to 7% likely over the course of the next six months, before there is the potential for a more stable picture to emerge, as the Expo effect starts to filter through. Villa rents are forecast to end the year by 15% to 20% down on 2016, while apartments are expected to demonstrate greater stability, with average rents likely to decrease by a further 2% to 4% throughout 2017.”