Dubai's property market has been on a tear these three years, whether it's on sales or rent gains. That's an incentive for developers to build projects to rent rather than just sell. Image Credit: Supplied

Dubai: Even as Dubai’s hyperactive offplan market keeps them busy, some developers are starting to think of building new residential units they can rent out rather than only sell. Such a shift would also come in handy at a time when overall property sales and prices are seen as stabilizing after two record-setting years.

At the same time, Dubai’s rental market could be in for another strong year of all-round gains, and this is exactly where developers are spotting opportunities. Deyaar, the Dubai developer listed on DFM, expects to create up to Dh1 billion worth of residential rental portfolio over the medium term to tap into the demand.

“Clearly, there are signs of offplan price gains slowing down, or even dropping,” said Saeed Mohammed Al Qatami, CEO of Deyaar. “For developers, having a mix of properties to sell and rent out will help sustain the growth of the last two, three years.

We are thinking of creating a residential rental portfolio to add to the Dh2 billion plus worth of commercial real estate (including hotels) we already have. Developers will do the smart thing of boosting their ‘recurring income’ prospects, and this is where a rental portfolio helps.

- Saeed Mohammed Al Qatami of Deyaar

Make best use of new stock

There are other developers, big and small, who are thinking along these lines. In a way, they are also taking pre-emptive action against any slowdown in the property market cycle. Deciding to rent out will also mean they have clarity of what to do once the project is complete. Because no developer will want to be left carrying unsold units on their books for long, especially given that there will be corporate tax implications for that.

“A lot of developers faced a hard time during 2018-19 when the property market had cooled and a lot of projects got completed with unsold units,” said an industry source. “This time, developers with newly finished residential projects have the best of both worlds – a strong sales and rental market. It gives them options - what better way to make use of the 10- or whatever per cent of stock that's unsold.”

Dubai rents have risen by 15-35 per cent at all of the high in demand locations. Newer areas in the city that have seen more buildings getting handed over too have seen the pull of upward rentals, as residents – newcomers and existing ones – seek out the best options that fit in with their budgets and needs. (There are also more of the Dh1 million plus annual rents happening, industry sources say.)

Heavy competition for investor-landlords?
If Dubai developers march into the residential leasing space, they will end up giving some intense competition to individual landlords, and those investors who bought to rent out. The yields in Dubai's residential rental space are ticking along nicely, and these two=three years, landlords have been calling the shots.

But if any developer were to come in with a sizeable portfolio of units to lease, they can create some serious ripples to the status quo.

As for Deyaar, it’s proving to be a good run, whether it’s with the 70-storey ‘Regalia’ skyscraper in Business Bay or the Midtown community development. The Regalia, where apartment prices at the higher end come to Dh14 million and over, is more than 50 per cent complete. Midtown (which also includes hotels and retail) is emerging as a popular choice for apartment buys. Listings show two-bedroom units there averaging around Dh1.5 million.

“We are nearly through with what we can build in Midtown,” said Al Qatami. “Soon, we will start on the process of buying new land to build, and deciding how to make best use of it.

“The Dubai property market still has lots of room to grow, with more residents and property owners wanting to set up homes. This is growth driven by the best of market fundamentals.”

And where offplan sales - and rentals - can give developers just what they are looking for on their bottom-line…