Dubai: The lower rents that Dubai’s tenants are hoping for will not be coming any time soon. And the reason is that not enough supply of new homes are getting delivered to make much of a difference.
As against the 20,000 units that were expected to be delivered in Dubai this year, the actual number would be around 14,000, according to a senior official with the consultancy CBRE. It could be that developers are being extra careful in not flooding the marketplace with too much supply, and cause a further deterioration in sales prices.
But in the process, the impact of lower supply is being felt on the rental side too. With fewer options to choose from, Dubai’s tenants are forced to make do with paying extra for their existing premises or shift to the northern emirates to seek lower rentals.
“There are a lot of buildings that look complete from the outside but have not been handed over,” said Matthew Green, Head of Research at CBRE’s regional operations. “It could be a combination of factors — the Civil Defence signoffs may not have happened, the payment to the contractors have not been made or the developer is holding off because payments due to him have not been made.
“These stoppages seem to be happening at any point — one day you are on a site that is going on at full steam ahead and next time there’s nothing happening there.”
During the second-half of the year, the number of new project launches had come down appreciably. Whatever were there tended to be niche high-end offerings in locations such as the Palm, MBR (Mohammad Bin Rashid) City and Meydan. The mid-tier projects launched in the first-half of the year and in 2014 are still two to three years from completion.
CBRE on Monday issued its projections for Dubai realty, which talks about the likelihood of 48,000 homes being delivered in the 24 months from January next.
With fewer new deliveries made this year, the “more affordable locations — such as Jumeirah Village Circle, Dubai Sports City and Dubailand Residences — all achieved rental growth,” said Green. “As has been the trend, prime areas such as the Palm Jumeirah, Dubai Marina and Downtown Dubai continued to see rental deflation with rates falling between 1-3 per cent during the (fourth) quarter.”
Therein lies the opposing dynamics at work in Dubai’s residential space. It is the upscale locations that are witnessing some rental corrections, though these are very much in single-digit territory. But even the slightest corrections are not visible in the relatively more affordable freehold locations as well as the traditional residential areas in Deira, Karama and Bur Dubai. And on the city’s outskirts, heading into Al Nahda, Al Ghusais and Rashidiya, rentals continue to inch up. With Dubai projecting a sharp increase in its resident base, the pressure on rentals will continue unabated.
According to Green, the affordable locations will continue to outperform prime areas as the “flight to affordability prevails”.
