No relief for lower-end tenants in Dubai

The lower end of the rental market in Dubai is in dire need of price corrections, preferably downward.

Dubai's 'replacement policy' for old and dilapidated buildings, fuelled by investors' expectations of at least ten to twelve per cent returns, compared to traditional targets of five to seven per cent, seem to be at the core of this problem.

Tenants in areas such as Al Qusais, Al Nahda, and certain parts of Deira and Karama are often forced to take in extra tenants to help meet the expenses.

Overcrowding and bad maintenance lead to the quick demise of these buildings, and even turning them into an eyesore for the city, which in turn puts pressure to have them replaced.

This is when the investors step in with high expectations for returns, which culminates in higher rents in the replaced buildings. No wonder families are taking flight to Sharjah, the only recognised 'rental haven' in the UAE at present.

This is in stark contrast to the upper end of the leasing market, of around Dh80,000 plus a year for a villa in sought-after areas, where a general easing of rentals are expected due to a sudden boom in the buyer's market.

The emerging property buyer's market in Dubai is drawing most of their clientele from this sector, causing an outflow of capital which is sure to have an ease-effect on rentals here.

According to officials at Dubai Development Board, which administers a large number of residential units in Dubai on behalf of the government and private investors, buildings in Dubai are replaced either by order of the Royal Court or through requests and projects initiated by private investors.

Officials also gave the assurance that in buildings under their control, price increases are only considered in cases where improvements were made to residential units, or facilities surrounding them.

Rental-wise, Dubai is one the most expensive cities in the world to live in, and is regarded by many expatriates as an indirect form of taxation, says a residential leasing manager of one of the city's leading real estate companies.

"A start-up professional earning Dh5,000 per month cannot even afford to live alone here. They are forced to share accommodation, unless they are prepared to spend up to 60 per cent of their monthly income on accommodation which makes life impossible in an already expensive city like Dubai," she says.

Tearing down badly-maintained, old buildings with their signatory unsightly TV antennas and washing hanging from balconies, might on the surface of it all appear as a good move to beautify the city, but deep down it causes much frustration: new buildings invariably mean higher rents.