By Joanne Bladd
New supply severely undercutting rents, vacancy rates forecast to hit 24 percent
Rents continue to slide in some of Dubai’s most popular residential areas as new supply squeezes prices, real estate firm Landmark Advisory said on Wednesday.
Landlords in new units are severely undercutting market rates to achieve occupancy, a strategy that has led to rent declines of up to 38 percent in some of the emirate’s developments, the agency said.
“Tenants realise it is currently a renters’ market and want more value for their rental dirhams,” said Jesse Downs, director of research & advisory.
“Some developers and landlords are finally realising the implications of this supply pipeline and are slashing rents by up to 20-30 percent below market rates in order to achieve higher occupancy in newly handed-over buildings.
“These properties are setting the new market rates,” she said.
Worst-hit are those developments with ongoing disputes over maintenance charges and infrastructure delays.
Nakheel development International City has registered a 38 percent drop in studio rents since June 2010, down to AED16,000 per annum from AED22,000.
In Dubai Marina, rents on quality two-bedroom apartments have plummeted 27 percent since June. Comparable units in Downturn fell by six percent in the same period, the agency said.
Landmark tracked three new Dubai Marina buildings in the three months from handover.
Those with a competitive pricing structure achieved occupancy of 90 percent within three months of handover. In comparison, the building with high rates and a rigid pricing strategy remained 60 percent vacant.
“We estimate that average vacancy rates in Dubai are currently 15-18 percent but will increase to 19-24 percent by 2012. Even considering the Abu Dhabi commuter demand, it is clear that average rents in Dubai will continue on a downward trajectory,” said Downs.
Villas in Dubai showed a slower-paced rent decline with projects affected by ongoing maintenance issues registering the sharpest drop.
Jumeirah Islands, a Nakheel development, witnessed an average drop in lower limits of 16 percent across all unit types, compared to a drop in the Meadows of only nine percent.
“Recently handed-over villa communities in Dubai have suffered severe price drops as many landlords have struggled to attract tenants to areas lacking basic amenities and infrastructure or near construction zones,” the report said.
Just questioning the 9 per cent fall in price at the Meadows, if I may make so bold how many transactions is that based on and when did they occur? Also is that based on asking price or actual selling price?
Casually looked on a property listing website and saw the following:-
4 Beds Villa For Sale - The Meadows 4 Bed AED 1,111,111
This is a spacious villa in Meadows 1 with a well-defined lay-out and amazing lake views. It consists of 4 bedrooms, maids quarters, storage, laundry room, spacious balconies and a landscaped garden. 4,081 Sq. Ft. 4 Bed(s) 272 AED/Sq. Ft.
That entry smacks of either a massive error or extreme distress! Is it not distressed assets that set the pricing trends with the market in its present condition, the nearest competitor I can find like for like has an asking price of AED 3.5 million. One assumes that cash investors will now see AED 1.1 million as the MAGIC Meadows number and as of 10 minutes ago it's still for sale.
I would like to get hold of the sellers contact - have been looking for a 4 bed at this price in Marina
I don't know if I should be celebrating or not. All I can say is that "What goes around, comes around". Six years ago, I was renting a 2 bedroom flat for AED 14,000.00 and see the prize shoot up to AED 45,000.00 in that span of time.
In 2012, there will be no rebound if the average resident in the UAE (not necessarily in Dubai) will not be able to afford the new rent prices. Also, don't daydream that the oversupplied properties will be filled between now and 8-10 years later. Even Prince Al Waleed bin Talal mentioned that it will take a much longer time for Dubai's rent prices to hit rockbottom; therefore, don't believe that what prices you have now or will have in the next nearing years to come are the lowest that they're going to get. My advice to you is to stop this exaggerated optimism and to wake up and smell reality.
To firstly comment, this article if you notice is for the RENTAL market, not for the sale market, so your statement is irrelevant to the story at hand. However, for the sake of the discussion since you mention it, sorry, but wherever it is you noticed this price of 1,111,111 is obviously a scam because no such pricing exists, even if it was a 3 bedroom villa of the smallest type, not the 4 BR you claim advertised. Believe me, if a Meadows owner is selling at 1.1M, he doesnt need to advertise it and we would never know about it, he can just knock on his neighbours door and he'll buy it, the whole street near his villa would buy it. Don't believe everything you read and certainly don't believe everything publicised related to real estate and property.
Some Clients like Wasl don't reduces the rent upon renewal if the building does not belongs to them. For the buidlings owned by individual landlords and managed only by Wasl, their tactics is not to reduce the rent. Instead they prefer the tenant to leave the flat so a new one will come, thus getting a 5% commission again from them. Ultimately the original landlord will suffer as the flat is vacant. In some cases Wasl will reduce the rent after existing one has left. In this case also they will get 5% com. from new tenant. Wasl should stop such bad practice.
It's all about benchmarks...
Market participants ought to know that the percentage decline is being benchmarked to 2008 sale or rent prices which was totally irrational and unsustainable. Landlords and the hilium-blowing real estate agents ought to erase the 2008 price benchmarks from their memories, and adapt to a more realistic market.
The prices right now are getting more reasonable but are still rather expensive across the Board, and will continue to decline for the next 3-5 years. Market research analyst would do us a great favor if they a) can determine the average salary of an expatriate in Dubai and compare the rental expense as a percentage of his salary to that in cities like Singapore, HongKong, etc. and b) start benchmarking rents to the prices of properties (i.e. yields) like every where else in the world. From what I see rental yields in Dubai are reasonable, but please forget about the 2008 prices!!
Point taken re the article focus on the rental market, I stand corrected. However, isn't a dramatic fall in selling prices ultimately one of the contributing factors to a decline in rental rates? Naturally, along with a distinct shortage of paying public and a steady stream of oversupply which just keeps on coming.
I even noticed that Nakheel were reinstating residential projects, guess that is because customers have already made staged payments against units yet to be built in those developments. However, I imagine a proportion of this new supply was originally envisaged as ripe for the rental market.
Re the Meadows villa price 'scam' as you refer to it, could you then lobby Bayut.com as its under Meadows properties for sale with the name Halcon Real Estate beside it pg 2 or 3. Also the peer group price $1 million for a 4 bedroom house seems a lot. Isn't $600k a bit closer to the comparative way of the world these days? I only ask because you sound like an expert
RBH: Are you seriously accusing them of "exaggerated optimism"?They're saying some rents fell 50% in just six months!
Surely, you are not serious Charlie.