Dubai: The average cost of renting apartments and villas in Dubai continued to drop in the last 12 months and is expected to fall further this year, as the slowdown in the jobs market casts doubts on tenancy demand.
The latest data from REIDIN showed that rental prices in Dubai’s residential market dropped by 5 per cent in the last one year and 2 per cent in the first quarter of 2016. House prices also dipped by 1 per cent in the last three months.
According to Cluttons, the trend is likely to continue in the next few months, with the overall rents expected to post a further 3 per cent to 5 per cent decline this year, on average.
“Weakness in the jobs market tops our list of concerns, particularly if there is a spill over into sectors beyond finance and banking, which is already seeing a growing trickle of redundancies,” said Richard Paul, head of residential valuations at Cluttons UAE.
Standard & Poor's Ratings Services also announced on Wednesday that it is expecting real estate prices to continue falling in 2016 amid "weak market conditions".
"Pressures have arisen from declining oil prices subduing the hiring and expansion plans of oil-exposed companies, and non-oil private companies' business activities having softened," Standard & Poor's said in a statement sent to Gulf News.
A number of companies have announced several job cuts and tightened their recruitment activity recently, raising concerns that the slowdown could ripple through the rental market.
Emirates NBD just announced this month that it has cut 300 jobs as part of an internal restructuring strategy. Other financial institutions, including RAKBank, HSBC, Standard Chartered and First Gulf Bank had earlier slashed their headcount.
Recruitment specialists also confirmed that there were fewer jobs on offer during the first three months of the year, although certain sectors, including healthcare, have posted online hiring increases.
Jesse Downs, managing director of Phidar Advisory, said they also anticipate rents to drop by at least 10 per cent this year. "Based on anecdotal indicators, job growth has slowed and reduncies are up. This all impacts housing demand, which has an impact on rents," Downs told Gulf News.
According to Downs, apartment rents dipped by 2.1 per cent in the first three months of the year. "And we expect this trend to gather momentum, bringing down rents at least 10 per cent over 2016."
The pressure to cut down on rates is already on, with brokers finding it difficult to fill flats that carry premium price tags. "Even last year, large and expensive units with rent above Dh200,000 per year were harder to rent and typically had high variation in bid-ask spreads. This has trickled down to demand for mid-high income units with rents as low as Dh100,000," added Downs.
Besides the employment slowdown, any uncertainties about the global economy could also have an impact on the domestic real estate sector. While news about the Expo 2020 could boost confidence about the economy, real results could materialise only until around 2018.
“As Dubai’s economy becomes more intertwined with the global economy, it will be influenced to greater extent by events in the international arena,” said Paul.
“With further weakness expected in China and the EU, a turn-around in global growth is unlikely this year. As we have stated previously, the impact of the World Expo is yet to materialise and is likely to impact the rate of job creation, which will have positive ramifications for both the sales and rental markets in the city; however this is not expected until around 2018.”
Other property analysts, however, maintained that the Dubai or UAE property market has already stabilised and that real estate activity is poised to speed up.
“Dubai’s real estate market sailed stably through the first quarter. Not only did we see real estate developers carefully considering demand before supplying market with new units, we also saw an even distribution and movement of residents from the city centre to [the] suburbs,” according to property portal Bayut.com.
“Maturity is the word commanding Dubai’s property market right now and the slight adjustments here and there spell nothing but stability to emirate’s residential sector.”
A separate rental review by the property portal indicated that lease rates for flats in Dubai dropped by 3 per cent during the first quarter compared to the same period in 2015.
However, average rental figures in the first three months of the year went up by 3 per cent when compared with those at the end of December 2015.