Dubai: Rental rates throughout the northern emirates have witnessed a substantial drop since 2009 due to new supply and low demand.
Lease rates have dropped 29 per cent since the first half of 2008, according to CB Richard Ellis' latest Market Report.
According to the report, this trend is likely to continue during the first half of 2010 due to weak demand and increasing supply from within the northern emirates as well as border areas of Dubai such as Al Nahda, Muhaisanah and Al Ghusais.
"Demand is very slow, almost non-existent in the sale market. But when it comes to rental…, the market is still witnessing some movement, mainly from tenants who are relocating to more affordable or better quality property," said Mohanad Al Wadiya, managing director of Harbour Real Estate.
The entry of new stock that is still currently awaiting utility connection is likely to further impact on these rates and occupancy levels.
The highest decline in rental rates was seen in one-bedroom apartments, which dropped 34 per cent, while two- and three- bedroom apartments dropped 29 per cent and 25 per cent, respectively.
Flight for quality
This drop can be partly explained by a flight to quality as people opt for larger flats that are on offer for much lower rent than in previous months.
Ajman and Ras Al Khaimah have experienced pricing slumps and values dropping over 50 per cent in some off-plan properties.
Prices for residential properties in Ajman are currently Dh4,300 per square metre. Residential prices in Ras Al Khaimah are faring slightly better with prices ranging from Dh6,700 to 7,800 per square metre.
"The gaps between rental rates remain the same among the different northern emirates.
"Sharjah is still demanding the highest rates, followed by Ras Al Khaimah, Ajman, Fuj-airah and finally Umm Al Quwain, which is still the most affordable northern emirate," said Al Wadiya.
While most of the projects in Ajman and Sharjah are on hold or progressing very slowly, Ras Al Khaimah is witnessing the most progress.
At present, Al Hamra village is the only project 90 per cent complete and with 80 per cent occupancy and has only one residential tower left to be completed in front of the resort.
It is still an active construction site with two floor levels built at its current construction phase. Al Hamra Village in Ras Al Khaimah offers high rates compared to competing developments in the region, about 30-35 per cent higher.
Bab Al Bahr on Al Marjan Island, a sister development of Al Hamra Village, by Rakeen Properties, is also on schedule. The infrastructure in Phases 1 and 2 is complete and infrastructure in Phases 3 and 4 is nearing completion.
La Hoya Bay, initially proposed by Khoie Properties, has been taken over by Rakeen Properties, and the project is being developed for delivery in 2011.
The Mina Al Arab development and Pacific, located on Island 4 of Al Marjan Island, is expected to be completed in 2011.
Migration has had a negative impact on the market. More and more residents are opting for locations on the border areas of Dubai, where better quality stock and increasingly competitive lease rates are offered, dragging down lease rates.
"The leasing rates across the northern emirates continue to decline during 2010. The continued migration of residents to Dubai is pushing lease rates down and vacancy rates up. The lack of quality supply is still an issue, and this is putting more pressure, as this is another reason that drives residents to consider Dubai," said Al Wadiya.
The matter is compounded by the fact that a high percentage of residential accommodation in the northern emirates (mainly Sharjah, Ajman and Umm Al Quwain) has stemmed directly from Dubai.
"It seems that the northern emirates had become somewhat reliant on the accommodation requirements generated by their fast-growing southern neighbour [Dubai] and this helped fuel excessive expectations for new units," said Mat Green, associate director, research and consultancy, CB Richard Ellis, Middle East.
To stem this exodus, landlords are offering incentives such as rent-free periods of up to one or two months, free chiller, and in some cases free parking, which would normally cost between Dh3,000 and Dh5,000 a year.
