Sheikh Mohammed bin Rashid Al Maktoum, UAE Prime Minister and Vice-President and Ruler of Dubai, has issued a decree stating rents signed in 2008 cannot be raised.
However, some Dubai agencies and analysts are already predicting that rental rates are set to drop by up to 25%.
Coupled with this, he predicts the downturn will continue for up to 18 months and rents will drop by 20-25%.
"This is from an already inflated base and people who wish to make high returns in the short term have to revisit their numbers," says Dr Al Shafiei.
Dubai agents are also anticipating a drop in rental levels. Laura Adams, leasing manager for Better Homes, says, "rents are decreasing by 10 to 20%. "Supply has increased. Sale properties have become rental properties," adds Adams.
Quaid Abbas from agents Engel and Volkers is also predicting a 20% decline. "There is an increase of supply mainly for apartments in the areas of Downtown and Jumeirah Lake Towers. Rentals are slow but still moving and landlords can still get one cheque payment if the price they give is attractive," says Abbas.
"I don't think it will be like a ghost town with thousands of ‘For Let' signs," says Dr Al Shafiei. He believes the government's plans to invest in infrastructure will keep employment, and therefore demand, strong.
Dubai landlords and agents are already feeling the pinch in the short-term holiday rental market due to the downturn in global tourism.
Amir Fazail, from the Dubai Apartments holiday lettings agency, reports that bookings are down by as much as 80%. "In late November business got worrying and since then it's going further down with no relief in sight," says Fazail.
On a positive note, Fazail does report that he has seen an increase in bookings from Abu Dhabi, with residents in the UAE capital now considering Dubai as a cheap break.
In late 2008, short-term property occupancy levels were on average about 70-80% says Imran Latif, from the MyDubaiStay.com website. However, he says they have now dropped to about 50-60%.
"Hotels are our reference point and hotels are dropping their rates at the moment," says Latif. Landlords have so far been reluctant to reduce holiday rates. The Holidaylettings.co.uk website even reports that rates have increased from an average of US$1,296 per week in January 2008 to US$1,915 per week at present.
In the commercial market, rent levels have come to an abrupt standstill. While 2008 rents in the office, retail and industrial sectors rose year-on-year by 29.4%, 17.6% and 50% respectively, in the fourth quarter growth was 0%.
"No-one expected the extraordinary levels of rent we saw in 2008 to be sustainable long term," says Nick MacLean, CB Richard Ellis' managing director for the MENA Region.
The average rent for office space in Dubai is US$1,566 per sq m per annum. This is 5.6% higher than in the West End of London and nearly four times as much as cities such as Vienna, Brussels or Berlin.
"The fundamentals within the market seem to suggest that unless there is a further deterioration in sentiment some stability may come into the market as a result of some developers slowing down their pipeline," says MacLean positively.
A recent article in Arabian Business revealed that prices in Dubai's malls are up to 50% higher than the UK. As a result experts have called for prices to be cut or tourism levels will suffer.
However, most retailers pay a fixed rental rate and an additional top up which is based on turnover. Therefore, if retail prices are cut or turnover drops, rents will decline. If landlords do not drop fixed-base rates then retailers will be unable to cut prices. It appears to be a ‘chicken and egg' situation.
With long-term and short-term residential rental rates decreasing and retail, office and industrial rental rates stagnant, it would seem that for developers and agents the days of rising rents are becoming a distant memory.
"Another problem we had with development in Dubai, is we were too focused on the high end. I don't think the demand is there now so that will be hardest hit," adds Dr Al Shafiei.
Al Shafiei thinks developers should target the medium and lower end market and the government should introduce incentives to encourage them to do so.
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