House rents in Dubai not likely to come down soon

House rents in Dubai not likely to come down soon

According to the report, while it is unlikely that rents on average will record any negative growth this year, we may see some downward adjustment for properties where landlords start to feel the pressure of rising void periods.

House rents in Dubai not likely to come down soon

The residential property market in Dubai is showing modest growth in the first quarter of 2014, and while rental value growth has slowed, average rents are not expected to come down, says a report by real estate consultancy Cluttons.

The Dubai Spring 2014 Residential Market Outlook report highlights how, post the positive outcome of Dubai’s 2020 bid, Dubai is seeing a return to a more moderate pace of growth, as previously anticipated.

The economic growth and frenzy in the lead up to the bid announcement led to strong demand for residential property in 2013 and helped lift average values by 51 per cent during the course of the year. But a slew of regulations aimed at cooling the pace of growth are starting to peg back rate acceleration. Residential values expanded by 3 per cent in Q1, after rising by almost 6 per cent in Q4 2013.

Steven Morgan, Chief Executive, Cluttons Middle East, said: “The implementation of the Federal Mortgage Cap, along with measures such as the doubling of the property registration fee to 4 per cent, and the ban on off-plan re-sales until handover by some developers, have positively influenced the market’s behavior. This has been reflected in the gradual slow down in price acceleration, which we view as a normalisation of the residential market.”

Data appears to point to the introduction of the Federal Mortgage Cap in December 2013 as having the most significant impact on the rate of price acceleration.

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Morgan added: “The increased size of deposits means that property options available to mortgaged buyers is likely to be restricted to the lower end of the property spectrum and has already had an impact on transaction volumes. We expect the transition from rented property to owner occupation to take longer as deposits are amassed, which is translating into a slowdown in the number of deals being recorded.”

The report reveals that the reduction in end users in the market also creates an opportunity for institutional investors to swoop on the market while prices stabilize and domestic demand ebbs to an extent.

“We have already begun to see the return of institutional activity, which will help to further diversify the city’s long term demand base, following the Dh6.9 billion investment by Chow Tai Fook Endowment Industry Investment Development (Group) Ltd in the purchase of serviced apartments, high-end residences and two five star hotels at the Dubai Pearl scheme. We anticipate there will be more headline investment deals as the year progresses.”

According to the report, in addition to stablising capital growth, the regulations may prove beneficial to the lettings market as households may have no choice but to rent for longer. Rents still currently stand at 16 per cent up on this time last year, with values driven by the rapid rebounding of the economy and increased levels of job creation.

“It’s too early to assess what impact, if any, the supply pipeline will have on the longer term performance of the rental market. In the near term, factors such as affordability and the ongoing delivery of new schemes will dampen the speed at which rents rise,” said Morgan.

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