Dubai affordability fears grow despite rent rise slowdown

New Knight Frank report says prime rents still outpacing wage inflation, leading some tenants to mull home purchase
Dubai affordability fears grow despite rent rise slowdown
By Andy Sambidge
Tue 07 Oct 2014 01:49 PM

Dubai rental growth slowed to two percent in the second quarter of 2014 in parallel to subdued house prices, real estate firm Knight Frank said on Tuesday.

According to its Q2 prime rental index, Dubai still experienced the biggest annual growth in rents at 14.1 percent, beating Nairobi, Kenya to top spot.

Knight Frank said in Dubai, prime rents continue to outpace wage inflation which is raising concerns about affordability, leading some to consider buying instead of renting.

The emirate leapfrogged Nairobi which had enjoyed four consecutive quarters at the top.

The index also showed that rents in the emirate rose by eight percent during the past six months.

The Knight Frank report said: "Both cities recorded weaker growth in the last quarter which largely explains the index’s more sluggish performance over the three months to June.

"Annual rental growth in Nairobi more than halved from 25.8 percent in March to 9.9 percent in June. Dubai’s step change was less stark, from 16.4 percent to 14.1 percent over the same time period," it added.

Of the 17 cities tracked in the index, nine saw flat or rising prime rents in the year to June. The gap between the strongest and weakest performing cities over the last 12 months shrank from 32 percent in March to 19 percent in June suggesting the performance of the world’s top luxury rental markets is converging.

As economic conditions in the world’s top financial centres improves, prime rental demand is likely to accelerate due in part to the upturn in corporate relocations, Knight Frank added.

Prime rents in London began their recovery at the start of the year and recorded monthly growth of 0.9 percent in June, a three-year record.

In Hong Kong rental demand for luxury homes picked up towards the end of the second quarter as expatriate families sought homes prior to the start of the new school year.

With interest rates likely to rise in the US and UK in 2015, economic growth largely stagnant in Europe and stringent cooling measures still in place across much of Asia, we expect prime rental markets will benefit from quieter activity in the world’s luxury sales markets during the remainder of 2014.

Last month, Knight Frank said house price growth in Dubai over the past year to the end of June was the highest in the world.

Dubai topped the annual rankings for the fifth consecutive quarter, recording annual price growth of 24 percent. Turkey was ranked second with 14 percent annual growth, followed by Ireland (12.5 percent).

However Dubai's growth was down from 27.7 percent in the year to March, indicating a slowdown in price growth during the second quarter of this year.

Knight Frank said price growth in the emirate rose by 7.4 percent in the past six months and by 3.9 percent in the three months to the end of June.

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