Observers expect Dubai rents to fall marginally in 2016
Asteco estimates that a potential further 13,000 units will be delivered in 2016. - AFP
Dubai - Tide could turn in favour of tenants on units supply .
There has been a lot of chatter of a global recession looming round the corner. But for the common man, all that matters is whether their jobs are safe and whether house rents will decrease at the next renewal.
Industry observers believe 2016 will see Dubai rents fall marginally. But can we see a throwback to circa 2009, when tenants dictated terms to landlords?
"There would need to be a significant drop of at least 10 per cent in similar properties before tenants are likely to have any real bargaining power for a reduction in rent," says Toby Young, managing director of www.propertyrights.ae.
It's also important to do the math. As more completed homes come to the market, there will be an impact on rents.
However, the Dubai government has increased its 2016 budget by 12 per cent to Dh46.1 billion, of which 14 per cent has been allocated to infrastructure. More infrastructure spend will create more jobs and attract more professionals to Dubai who could help fill up the extra residential inventory.
There was no broad consensus on the number of units handed over in 2015. According to Asteco, 7,000 new apartments were added to Dubai's inventory at the end of 2015. Deloitte put the number at 10,000 homes while Cavendish Maxwell claims 8,800 units were delivered last year, mostly in Dubai Sports City, Dubai Silicon Oasis and Dubailand.
Asteco estimates that a potential further 13,000 units will be delivered in 2016. However, developers could push back deliveries owing to tepid market conditions.
In a recent interview with Bloomberg, Hesham Al Qassim, CEO of Wasl Asset Management, cautions developers not to be out of touch with market conditions.
"I'd be very cautious, whether running an asset management company or a development company. I have to be very dynamic in terms of my budget planning. When there is a slowdown, I have to go through my budget and try to adjust it according to the market."
"Those who are mindful of the reality around them will manage, but those who stretch themselves with billions worth of projects won't," says Al Qassim.
With the expected volume of new units, landlords will be forced to become more competitive in 2016.
"We have already seen some landlords increase the number of rent installments or in some instances free rent incentives. This trend was especially apparent around Al Nahda and Al Qusais," says John Stevens, managing director of Asteco.
So, will there be a throwback to 2009 where landlords offered incentives to lure tenants?
"The incentives offered last year were nothing more than gimmicks. We saw flights, rent-free periods and 13-month contracts for the price of 12, yet heard of very few people who were able to take advantage of, or believed them. At the end of the day, the only gimmick that tenants believe is one that comes in the form of lower rents," says Young.
This brings us to the question of why consultancies often report a decline in rents while Dubai tenants cry foul against rampant rent increases.
Consultancies cite rent drops based on referrals by real estate agents and adverts for empty properties. Property agents often rent empty properties.