UAE rent prices to soften in 2016

Newly-built residential villas sit in a district on the outskirts of Dubai. International property agency Chestertons see that the price correction has been absorbed at different levels depending upon the location and type of property.

The UAE's rentals will soften further in 2016 due to the widening gap between the demand and supply ratio, according to international property agency Chestertons.
The company also stated that developers should consider projects within the 'affordable segment' to further support this sector.
The industry should strike the right balance between demand and supply to strengthen the market this year. Residents in Dubai have shelled out a substantial amount on rents since 2011. However, rents have cooled in some parts of Dubai since the last quarter of 2015.
"With the oil prices plummeting, the real estate market in Dubai may, in all likelihood, undergo a squeeze on prices and rents in the short-term. The correction will be more of a normal real estate cyclical downturn of 15 to 20 per cent.  However, a lot depends on the impact of the external macro-economic factors and   also how the UAE economy continues to perform," Declan McNaughton, managing director, Chestertons UAE, said in a statement.
According to Chestertons, the price correction has been absorbed at different levels depending upon the location and type of property. There has been a correction between 8-15 per cent year-on-year in villa properties. This is partly due to the current price trend and also future supply that the segment is expected to see once projects such as Jumeirah Park, Villa Lantana, MBR City, Arabian Ranches phase 2 are completed. The supply could potentially double by 2020 and residents are expected to move out from older communities to newer communities as they are completed.
"Revised rental rates by RERA are 10-15 per cent lower than current market rentals. We expect the rental correction to be higher in secondary locations as supply increases," added Declan. The risk with regard to excess supply is difficult to quantify, however, the number of units developed every year are on the rise. The residential property market currently faces the prospects of easing due to the upcoming supply factor and also the recent price correction in the industry.
The market now needs to be closely monitored to avoid the challenges that it faced in 2008. Approximately 18,000 units were delivered and over 2,000 villas were added in 2015 to the existing inventory. These units are expected to cushion Dubai's rents that have soared since the last few years. Increase in supply will surely impact the market, particularly the new developments. The villa segment will also experience increased competition as more units are expected to enter the market by 2017," said Robin Teh, country manager, Chestertons UAE.
According to Chestertons, the market is finding its own level now. Owners, who were asking for higher rents, are being advised to drop it further to ensure that their properties don't remain vacant for long. Rental rates have mostly corrected across all areas, however, it is less noticeable within luxury properties. Luxury properties are still in demand and people who can afford them are still willing to pay the extra amount to move in to a posh locality with all the facilities. Due to the scarcity in land within the prime areas, the focus is now shifting to new growth corridors such as Dubai Land, Meydan and Jebel Ali.
- abdulbasit@khaleejtimes.com