Dubai’s tenants are more likely to stay put rather than go about chasing options. At least 80 per cent of respondents felt this was the best move they could make in the circumstances, according to a survey by Core Savills.
It shouldn’t come as too much of a surprise. “This majority is reflective of a natural tenant mentality to choose stability, while renegotiating with existing landlords by either reducing or keeping rents flat, over the inconvenience of relocation for marginal rental savings,” the report notes.
But those who decide to renew the contract on their existing home do not always reap the benefits of a renegotiated lease term. In fact, “Three out of 4 tenants who stayed in their existing properties did not reap benefits of a rent reduction,” the report adds. “This highlights the friction felt on the rental market with a lower elasticity of offer to demand. “Among the 74 per cent of tenants who have not yet seen their rent decrease, we expect further negotiations with their landlords bringing the overall market average down over the next 12-24 months, although more as a volume effect.”
It is surprising that with all of the recent handovers creating more rental stock, only a small percentage of tenants are willing to look at less costly options. And where renegotiations have been successful, they are unlikely to see drastic cuts from their original asking rent.
This could, partially, explain why Dubai’s residential space has not seen the sharp drops experienced in previous market corrections, and most notably between 2009-11. Sure, there have been rental drops in the current cycle, but limited to select locations rather than being a citywide phenomenon.
The respondents in the Core Savills survey were also hedging their bets on turning into buyers. “In 2016, a convincing 50 per cent of respondents believed that Dubai’s residential market was showing signs of recovery,” the report said. “This number has decreased to 34 per cent this year, primarily explained by the shift of positive responses in 2016 to the “indecisive category” of having no opinion in 2017.”
This is “translating to an increasingly hesitant state of mind shared by the occupiers. This uncertainty is a cause of concern due to the “self-fulfilling” sentimental momentum it may gather.”
According to David Godchaux, CEO of Core Savills, “These factors accentuate the fear to take a “leap of faith” for many first-time buyers in their decision to acquire a property, despite the very convincing signs of maturity, stability, and added depth.”
The survey findings further confirm this sentiment. About 36 per cent planning to acquire a unit over the next 12 months already own a property in Dubai. And 50 per cent of existing owners are considering further potential acquisitions.
Again, there are differing signals on where the market is headed. Recent months have seen an increase in overseas investor interest, principally from the Subcontinent, the rest of the Arab world, and China. This is more or less apparent in the official data from the Dubai Land Department.
“Off-plan apartments (especially below the Dh2 million price point) saw twice as many investors at 65 per cent compared to end users at 35 per cent thereby largely remaining investor products,” says the Core Savills report. “Some developers, have tried to reverse this trend and increase the ratio of end users among the total pool of buyers.
“As a result, attractive payment plans have flourished over the past 12-24 months, demonstrating their willingness to make their products accessible to more end-user buyers. This effort has been welcomed by the market with 64 per cent believing that attractive payment plans encourage buyers to favour off-plan over ready properties.”
BOX- What Dubai’s prospective buyers want
* Sure the Dh50 million and even the one-off Dh100 million villa transactions are happening in Dubai. But for the majority of buyers (80 per cent), the budget remains the primary factor impacting decisions. “This translates the sentiment of a market still essentially price-driven, with location and developer reputation coming far behind in buyers’ priorities,” states the Core Saville report.
* Location remains important, with 69 per cent considering it to be one of the Top 3 most important parameters in their buying decision. Developer reputation comes third with 54 per cent of potential buyers who consider it to be one of the three most important parameters.
* The build-quality came fourth with only 26 per cent of votes. “We do not interpret this as a factor diverting buyers’ attention away from quality, but rather as a different assessment tool for them to measure build-quality, through the developer’s reputation and track-record,” the report adds.
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