Time for a home run in Sharjah sees flight to quality

Dubai - Emirate's tenants take advantage of rent reductions to move to better homes.

Residential rents in Sharjah have been under sustained pressure. This is because of increasing affordable inventory in Dubai as well as better quality buildings being handed over in Sharjah. There is also evidence to suggest that residents making the daily commute to Dubai for work are doing the reverse migration. Almost 1 million people are estimated to commute daily from Sharjah and other Northern Emirates to Dubai for work.
However, rents haven't dropped significantly in Dubai to make them on par with Sharjah rates. Also, a lot of families opt to live in Sharjah by choice as overall services are cheaper, including schools, healthcare, entertainment, etc.

"With an increasing number of more affordable communities being built in Dubai, there has been some evidence of reverse migration taking place. This has been further aided by the declining rents in the emirate over the past 2 years, which has been particularly pronounced in some of the border areas, such as Muhaisnah, Al Nahda and Al Qusais, as well as older residential locations such as Bur Dubai," says Matthew Green, head of research and consulting for the UAE at CBRE.
There are other factors influencing rent reductions such as 'flight to quality' due to the increased inventory in Sharjah itself.
"New and often better quality developments are increasingly being handed over and tenants looking for better specifications and amenities are relocating to these often competitively priced projects. This has resulted in landlords of older properties to reduce rents and/or offer incentives to retain tenants and/or entice take-up. Finally, given the global and regional economic challenges and the subdued, if not negative business/employment growth, which resulted in job cuts and reductions in staff allowances, people were forced or chose to move back to their home country or try their luck in different parts of the world," explains John Stevens, managing director, Asteco.
More people are moving between buildings in Al Nahda and Al Taawun since a lot of new supply has come up in these areas. Also, Al Nahda, one of the closest areas to Dubai and therefore often the first choice for people leaving Dubai for cheaper rents in Sharjah, is likely to see an increased outflow of residents on the back of declining rents in Dubai
"Sharjah continues to suffer from inadequate infrastructure, particularly to handle the huge capacity of its residents who make the daily commute to work in Dubai. Hence, the areas which are experiencing the worst of these traffic delays are also typically where we are seeing tenants move," adds CBRE's Green.
Older buildings of inferior quality in older areas of Sharjah such as Al Wahda and Abu Shagara are also seeing a flight to quality. In older areas, the landlords are reducing rents quicker, reflecting the building's age. Well-maintained buildings in older areas are, however, still seeing good occupancy. The average occupancy in Sharjah's residential market is 94 per cent, estimates Cluttons.
"Under new Sewa [Sharjah Electricity and Water Authority] rules, the utility costs are cheaper in buildings owned by a local landlord. Hence, a lot of tenants are now looking to move to such buildings. The tough economic environment is making landlords flexible - they are offering easier payment plans [12 cheques], one month free rent and free parking as incentives," says Suzanne Eveleigh, head of Sharjah at Cluttons.
Meanwhile, tenants moving to Dubai are aiming for locations in Dubailand and Dubai Silicon Oasis as these areas offer comparatively cheap rents, as well as better road access into central areas of Dubai.
"People are predominantly locating to affordable developments such as the older parts of Dubai namely Deira [Muhaisnah, Al Qusais and Al Twar] and Bur Dubai as well as master-planned communities such as International City, Warsan Village, Al Khail Gate, Discovery Gardens, Dubai Production Zone [former IMPZ], Jumeirah Village, Dubailand, etc," informs Stevens.
Market observers believe the Sharjah residential rents are close to bottoming out. "There is not enough supply coming to reduce rents further. There are almost 6,000 units coming to the market, the majority of which are not for rent. Sharjah is seeing a population growth of 2.5 per cent a year. We are going to run out of stock and don't see supply outstripping demand. Not a large percentage of tenants have been buying in the newly announced freehold projects. More than 80 per cent of Sharjah residents rent and the majority of tenants won't ever buy a home here because of affordability issues," adds Eveleigh.
- deepthi@khaleejtimes.com

• Sharjah