Declines in the Dubai Land Department’s recently updated rental index for residential, commercial and industrial properties mean that tenants will not face increased rent and generally reflect a preference for newer buildings in freehold areas, according to an analysis from ValuStrat.
The new rental index includes all areas of Dubai, as well as all types of property and indexes for new projects.
The index is based on Decree No. 43 of 2013, which set an increase of 10 percent of the rental value if the rental fee is between 21 and 30 percent of averages wages, 15 percent if the rental fee is between 31 percent and 40 percent less than the average wage, and a 20 percent increase if the rental fee is 40 percent less than the average wage.
According to Haider Tuaima, the head of real estate research at ValuStrat, a comparison of the updated figures with the previous databases shows that a majority of non-freehold areas have seen declines averaged 10 percent.
“However, with a more in-depth analysis, we found that some areas saw declines of up to 25% which is the case for studios in Souq Al Kabeer in Deira and 20% declines for one-bedroom and three-bedroom apartments in Abu Hail,” Tuaima said.
Tuaima added that non-freehold areas that saw increases in their rental index include Port Saeed with up to 20 percent for two-bedroom apartments, Riggat Al Buteen, which saw up to 26 percent increase for two-bedroom apartents, and Ayal Nasir, with a nine percent increase for the low-end of two-bedroom apartments.
“The story is not the same for freehold areas, where the vast majority of areas saw no change in their perspective rental index,” he noted.
As the index does not force landlords to reduce rent and only regulates rental increases, any declines simply mean that there will be no rental increases for tenants.
Tuaima also noted that “the latest update seems to reflect the general trend of tenants preferring newer building in freehold areas, as this is the case when more new supply is handed over.”
“As reported previously, asking rents saw annual declines of 10.5 percent, which is now more in less in line with the RERA index, as landlords began their yield expectations and prefer to minimise their vacancy rate,” he said.
“As more units are handed over, we expect more tenants to consider the move, particularly within the northeastern side of Dubai, namely International City, Al Warqa, Dubai Silicon Oasis, Liwan, Living Legends and Majan,” he added.
Another analyst, Core Savills CEO David Godchaux, said that “widespread rental contractions have been evident throughout 2017 with a lot of ‘viscosity’ witnessed due to the very in-elastic nature of the rental market.”
“The lag in adjustment means that the average rentals do not fully reflect the actual amplitude of the softening until a substantial section of the market has adjusted, and this statistical bias is difficult to avoid in most indexes,” he added.
Godchaux added that the index, which he called “a great tool”, will take time to reflect the whole amplitude of softening, “it also has a stabilisation and regulation effect on the market, slowing down the actual softening and counter-balancing market forces in the short term, making the softening more gradual.”
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