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Tenants use falling rents to upsize homes in Dubai

Tenants use falling rents to upsize homes in Dubai

Khaleej Times, 12 December, 2018

A majority of tenants in Dubai are capitalising on the decline in rents to move to a bigger property. Some of them are also bargaining with their landlords to renegotiate more favourable contractual terms. Previously, when rents were going up, people chose to move to the newly developed suburbs of Dubai to get better value for money.

“With rents declining, 61.4 per cent of Dubai residents who moved upsized their homes, 16.2 per cent downsized and 23.4 per cent moved into a house of the same size. Rents have been decreasing due to increased supply of new units, enabling an increasing number of Dubai residents to move to bigger and better homes. It has also become easier for growing families to find bigger homes that fit within their existing budget,” says Bana Shomali, founder and CEO, ServiceMarket.com, a marketplace for moving services which conducted a survey to find out why Dubai residents moved during the last 6 months.

In general, Dubai residents who moved are paying lower or same rent even though most of them moved to larger units. Only 35.5 per cent of them are paying higher rents. Only 29.9 per cent of Dubai residents moved to cut down the cost of rent in 2018. Many tenants are now ‘right sizing’, which means they can move to apartments that were out of their reach earlier due to budgetary constraints.

Real estate consultancy Chestertons estimates that apartment and villa rents declined 4 per cent and 3 per cent respectively in Dubai in Q3 this year. The biggest declines for apartment rents have been witnessed in DIFC and Discovery Gardens which recorded an average decrease across all unit sizes of 6 per cent and 7 per cent respectively from Q2. In the villa market, the biggest average rental declines have been seen in Al Furjan at 6 per cent with Palm Jumeirah and Jumeirah Islands at 5 per cent.

“Declines appear to be most prevalent in smaller apartments. Across the board, studio rents decreased by 6 per cent, while 1BR and 2BR units declined by 4 per cent and 3BR units declined by 3 per cent. In the past, smaller unit types have been more resilient. However, due to increasing stock, these units are becoming more volatile. Similar adjustments can be observed when it comes to villas,” says Ivana Gazivoda Vucinic, head of advisory and research, Chestertons Mena.

The higher end of the market has taken more of a dip than other areas. “We have seen Palm Signature villas and Emirates Hills villas for rent decline by 10 to 15 per cent over the past 6 months,” observes Myles Bush, CEO, PH Real Estate.

Says Simon Baker, managing director, Haus & Haus Real Estate: “Topping the list have been prices of townhouses, with some dropping as much as 20 per cent in the last 12 months.”

Established communities offering good facilities at affordable rents are witnessing only small rent movements. “In the apartment sector, Motor City, The Greens, Dubailand, International City and Dubai Silicon Oasis witnessed the smallest movements – with a 2 per cent decline for Motor City and the remainder at a 3 per cent decrease. In the villa market, Jumeirah Golf Estates, The Lakes, Victory Heights and Arabian Ranches witnessed the smallest movement with a 1 per cent decline in average rents,” explains Chesterton’s Vucinic.

Rents are expected to decline further throughout 2019 as a consequence of additional supply being added to the market.

“Logically, any market should revert to the fundamentals of ‘supply and demand’. Logic dictates, usually, that prices could drop further with the increased number of units coming onto the market. However, Dubai authorities are making sensible changes by lowering operating costs for businesses and improving the overall laws that govern immigration/visas laws. These positive steps, supplemented by an oversupply in stock levels, means that it is very difficult to come up with a concrete forecast for the upcoming trends,” observes Bush.

Generally, tenants are seeing better value for money and greater levels of availability – across the board – and are either negotiating better rents and terms with current landlords or moving to newly handed over developments with competitive pricing and a strong focus on good facilities and amenities.

“With rents having dropped by as much as 30 per cent in the last 2 years, many tenants are using this as an opportunity to upsize in a declining market,” continues Baker.

Landlords are becoming wiser and feeling the need to reduce void periods for their property by lowering rent and offering more cheque payments to retain/attract tenants.

Due to additional stock being available and limited new demand, landlords have to compete not only on rents – but also introduce incentives to attract and retain tenants. “These incentives include multiple rent cheques, some of which are even extending to monthly payments, as well as rent-free periods. Other incentives have included the waiver of security deposits, multiple cheques to cover utility bills, short-term leases and in some cases we have witnessed landlords covering the cost of agency fees.

“We have also seen landlords with older properties upgrading or re-investing in their units to compete with the newer developments. Properties that require maintenance or upgrades are being overlooked by tenants in favour of better quality or newer units on the market,” concludes Vucinic.