Thanks to oversupply, Dubai tenants making payments in more cheques now
Decline in rents expected to continue through 2020
Tenants in Dubai are benefitting from the oversupply in the market and they are have successfully negotiated easier and shorter rental payments over the last few years.
According to Cavendish Maxwell's data, approximately 35 per cent of the market was paid in one cheque in 2019 compared to over half the market in 2015. But this still makes up the highest share.
In 2019, 35 per cent of tenants paid a single cheque followed; 30.4 per cent gave four cheques, gave four cheques, 21.8 gave two and the rest paid three, six and other frequencies.
"A higher share of the market at 32 per cent paid in four cheques in 2019 versus only 9 per cent in 2015. Also, 4 per cent of the market paid 12 cheques in 2019 versus only 1 per cent in 2015," says Aditi Hariharan, associate partner for strategic consulting and research at Cavendish Maxwell.
Majority - 56.9 per cent - of Dubai tenants paid one and two rental cheques despite rental market being heavily in favour of tenants.
She said despite landlords agreeing to multiple cheque payments in the current real estate environment, there are some benefits for tenants who opt to pay in one or two cheques.
"By agreeing to pay in full or splitting the payment in a maximum of two installments tenants can negotiate a better rent with the landlord. If the tenant succeeds in negotiating a lower rent, the agency cost and security deposit [5 per cent for unfurnished, 10 per cent for furnished] would also decrease resulting in higher cost savings," Hariharan said.
Rentals have been consistently under pressure since the decline of the real estate sector since 2014, blaming oversupply in the market.
Cavendish Maxwell data showed that 220,208 units have been delivered since 2009 while nearly 140,000 units have been handed over since 2014, showing huge supply that came online in the last few years. The supply peaked this year and going forward, lesser supply will come to the market as developers pull back and launch less projects.
She noted that in the second half of 2019, the decline in rents slowed down on a quarterly basis and is expected to continue to do so throughout 2020 in certain communities.
Lynnette Abad, director of research and data at Property Finder, said there are plenty of new units available in the market that come up with very attractive deals such as 12 cheques, free chiller and furnished apartment options for tenants.
"This is the time to look at the newly built areas as developers have a lot of ready stock and offering nice incentives such as 12 cheques, months free, free chiller, furnished options, etc. In addition, this is also a good time to either renegotiate lower rent with your landlord or upgrade to a bigger unit or different area for the same price," Abad said.
Prathyusha Gurrapu, head of research and advisory at real estate consultancy Core, expects rental market will remain highly occupier friendly.
"Landlords and developers are expected to continue deploying strategies to absorb existing inventories and offer higher levels of flexibility to maintain occupancies, while a flight to quality is witnessed across residential and commercial asset classes," she said.
"While tenants are shifting/upgrading to larger units or more central locations, we also see many going back to their landlords to negotiate rent renewals. Most landlords are now flexible, offering lower headline rents and flexible lease terms to maintain occupancy," Gurrapu added.
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