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Jumeirah Islands saw a 27.3 per cent drop in villa rents Image Credit: Gulf News Archives

A considerable portion of the expat population in Dubai still stays in rented homes. A lot of them, unsurprisingly, are now enjoying what is deemed a tenant-friendly market where rents are softening across different communities. “One of the primary drivers of the rental price decline is the inflow of new residential supply towards the Shaikh Mohammad Bin Zayed Road and Al Khail Road corridor,” says Ali Siddiqui, research analyst at Reidin, noting how rental prices in the apartment and villa segments have fallen by 23 per cent and 26 per cent respectively since 2014. “Since the peak in mid-2014, around 98,000 new residential units have been delivered in the market.”

In the apartment segment, areas such as International City (32 per cent), Discovery Gardens (27.2 per cent) and Dubai Marina (24.9 per cent) witnessed the highest decline in rents, says Siddiqui, while Arabian Ranches (29.6 per cent) and Jumeirah Islands (27.3 per cent) had the highest drop in the villa segment. “Despite decline in rentals and a slowdown in the overall real estate market, Dubai’s property market still offers decent rental yields to investors,” he adds.

With current rental prices having triggered greater tenant movement in the market, Suraj Rajshekar, general manager of Rocky Real Estate, says landlords now are more receptive to tenant demands. “We see families moving into bigger homes, either by negotiating with the landlord or moving into a building close in the same area. Also, families can now live closer to the school of their children,” says Rajshekar. “Generally, any good building closer to the school is having high demand, therefore higher rents.”

Although the market currently favours the tenants, Rajshekar says landlords can find good opportunities, particularly those who have a realistic approach towards their property by “maintaining the building/unit well, being flexible with their tenant’s needs, not disturbed by recent market trends and maintaining their cash flows.”

Realigning rents

Emirati investor Ahmad Obaid has invested in Dubai real estate since 1999 and now has multiple properties in leasehold and freehold areas. “I have invested in villas and apartments in prime locations,” says Obaid. “I remember when the real estate market started and introduced the freehold projects — back then it was so rewarding in terms of capital gain and rental income.” In the last five years, however, things have become more difficult both in the rental and secondary markets, says Obaid.

He says oversupply and developers increasing their prices per square foot are contributing to the problems. “Developers are making smaller affordable units to make it easier to sell due to the lesser total cost, and yet with more profit and capitalising on the payment plan,” says Obaid. This attracts end users but discourages investors due to the combination of increasing price per square foot and decreasing rents.

“I had recently received one apartment in Ras Al Khor in the new project Creek Harbour. When I bought that off-plan unit back in 2015-16, the rental prices around the area was Dh145,000 for a two-bedroom unit, now it is Dh110,000 due to oversupply,” says Obaid. “My old feasibility study became irrelevant. [With an] investment of Dh2.1 million and a gross rent of Dh110,000, the net is Dh87,700 after paying the service charge and chiller charges of Dh23,300.”

With villa rental prices also falling 25-30 per cent, Obaid says investors need to be more creative in marketing their properties. “I’m trying to align my rental prices in order not to lose tenants and to stop the loss,” he says. “However, I think developers should review their strategy when it comes to supply and demand. Plus the real estate-related fees need to be reconsidered.”

Yousuf Khan, a Pakistani businessman who owns six units in Dubai, says individual investors could be more vulnerable. “For small investors like us, it is crucial to keep an eye on the market and see how we can manage losses and remain profitable in the current environment, where there is more supply chasing less demand,” says Khan. “To retain current tenants, we have reduced the annual rent by 35 per cent. There is an overall pressure on the property price and rent, but the situation will be apparent in 2021 after the Expo 2020 event. I believe if the rental freeze is implemented, it will provide a breathing space to landlords but that needs to be consistent, and should be in all areas in Dubai, be it in the lower, middle or higher-end property segment.”

Tenants moving communities

With landlords now more willing to negotiate, many tenants are upgrading to bigger homes or better communities. Chetan Sethi and his wife are among many who have moved to their preferred neighbourhood. “We lived in a one-bedroom flat in Discovery Gardens for six years,” says Sethi, a British travel designer. “This year we rented a one-bedroom flat in JLT Cluster A, Lake Side Residences, a place we always desired to live in. While money wise we are paying the same, but now we’re living in our preferred community and in a building that has all facilities, including a gym and a swimming pool. The rental market has dropped quite a lot, and in JLT the rentals have come down by 15-18 per cent, which has encouraged us to move here, as we wanted to be in a lively community for quite a time now.”

Adeela Siddiqui, a Pakistani tenant, will also be moving with her family from a 600-sq-ft apartment to an 800-sq-ft flat next month. “We are moving from Deira to Discovery Gardens where we are getting a bigger apartment than our old apartment in Deira, with a minor difference in rent. In Deira, we were paying Dh36,000 a year, while in Discovery Gardens we are being offered Dh40,000 a year. Just a Dh4,000 difference, but it is giving us a better lifestyle in a newer and better community. The reason for choosing Discovery Gardens is it is closer to my husband’s workplace, which will save two hours a day in drive time.”