Marginal decline in Dubai rents give advantage to Sharjah tenants

Marginal decline in Dubai rents give advantage to Sharjah tenants

Expats in Sharjah are using the marginal decline in Dubai rents to bargain with landlords during contract renewal, writes Deepthi Nair

By Deepthi Nair

Published: Thu 11 Jun 2015, 12:16 AM

Last updated: Wed 8 Jul 2015, 3:17 PM

Dubai and the Northern Emirates enjoy a symbiotic relationship. Cost-conscious expatriates often switch between living in the emirates of Dubai, Sharjah and Ajman based on rental market dynamics.

Circa 2008, when rents in Dubai skyrocketed, tenants moved en masse to the northern emirates. During the subsequent market correction, tenants returned to Dubai, leveraging the significant drop in rents. During the boom cycle in the latter part of 2013 and the first half of 2014, these families sought haven in Sharjah and Ajman again to escape the steep rise in rents.

Simon GrayNow, with rents in Dubai stabilising and experiencing a marginal decline in some cases, is it time for deja vu? Are we likely to see a reverse migration of tenants this time around?

“It is unlikely that we will see reverse migration take place in spite of the fact that we are seeing a marginal decline of rents in Dubai. While there could be a few who may seize the opportunity, however with the cost of relocation and having to redecorate a new house, the benefit of a marginal decline may not really be that attractive,” explains Niraj Masand, director, Banke International, a Dubai-based real estate company.

According to Simon Gray, managing director, Chestertons Mena: “Dubai rents are still considerably higher than Sharjah. For instance, Dh30,000 can get you a new one-bedroom apartment in Al Nahda area of Sharjah while one can only get a studio apartment for that amount in Dubai. For most families earning between Dh8,000 to Dh15,000 per month, Sharjah and Ajman still remain options for the long term.”

Rental cap

Tenants in Sharjah are also protected by a three-year rental cap imposed by the Sharjah Municipality. Landlords can increase rents only after three years from the commencement of a tenancy contract, and only every two years thereafter. Meanwhile, in Dubai, most tenants now face yearly rental hikes based on the Real Estate Regulatory Agency (Rera) rental calculator or prevailing market rates.

John Stevens“All Sharjah landlords should be abiding by the rental cap. If not, tenants can approach the rents dispute committee who will act accordingly,” advises John Stevens, managing director at Asteco.

“Most of the tenants are still unaware of this regulation and do not report excessive rental increases. However, in current conditions, it is unlikely that such situations would arise,” adds Chesterton’s Gray.

As has been the case historically, when rents in Dubai drop, there is even more pressure on rents in neighbouring emirates. This puts Sharjah tenants in an advantageous position, with increased bargaining power.

“Owing to the rather stagnant rental prices of residential properties in Sharjah since the start of 2015, an increasing number of tenants have been negotiating with their landlords on rental increases at contract renewal since Dubai is now a more viable option. Even though a landlord thinks of increasing rent, the hike would not be much as these trends have left Sharjah’s landlords in a rather compromising position. They are getting nervous about void periods to such an extent that they are actually refraining from increasing rents upon renewal of contracts,” informs Masand.

Popular areas

Having said that, Sharjah and Ajman continue to enjoy strong rental demand from middle-income families trying to balance commuting time and accommodation costs. Areas in Sharjah popular with families are Al Nahda (for proximity to Dubai), Buhaira Corniche, Al Khan, Al Majaz, Al Tawoun, Al Qasimia and Al Wahda.

“Preferred areas in Sharjah remain unchanged with the Corniche, Al Nahda, Majaz and Abu Shagara districts continuing to see high occupancy levels in better quality buildings. When units become available here, they are rented out almost immediately,” says Asteco’s Stevens.

However, residential buildings in Sharjah and Ajman do not offer the same build quality, facilities and amenities as those in Dubai. “There are no masterplanned developments in Sharjah. However, some of the towers are very well-built with quality fit-out and generous floor areas. Negatives include the lack of parking and on-site amenities such as gyms and swimming pools,” says Declan King, director and group head — real estate, ValuStrat.

“Most residential areas in Sharjah are overcrowded without proper parking facilities. There are no recreation zones such as parks in some of these areas,” Gray points out.

Oversupply in Dubai?

Although fears of an imminent tenant migration to Dubai are misplaced, it could soon be a reality. Dubai is expected to see the completion and handover of an estimated 20,000 to 25,000 new residential properties in 2015.

Niraj Masand“With a number of residential projects launched this year in Dubai alone and completion slated within two to three years, we expect a lot of units being offered on rent. This could pressure the rents to come down by another five to 10 per cent. Dubai could thus get back tenants it once lost, giving tough competition to other emirates,” forecasts Masand.

Although families returning from Sharjah and Ajman have traditionally opted for accommodation in areas such as Qusais, Muhaishnah and Mirdif so as not to disrupt their children’s academic schedules, Discovery Gardens and Al Khail Gate have been popular and cost-effective options too.

“Tenants usually move back to Dubai to live close to work or transit areas such as Karama, Bur Dubai which have better connectivity with the rest of the city. Discovery Gardens is also popular with residents looking to relocate to Dubai,” Gray suggests.

Despite Dubai being promoted as a luxury property hub, housing in the city is inclusive and provides options for budget-conscious tenants too.

Cheap housing options

“Dubai can be a slightly expensive place to rent a property. As they offer value for money, convenience, utility and outstanding interiors, many people opt to rent smaller properties such as one-bedroom apartments. However, Dubai does take care of tenants with small budgets as well. For instance, according to Rera, one-bedroom apartments in Dubai are available from Dh35,000 to Dh40,000 per annum in Arjaan community in Dubailand,” says Masand.

He adds: “International City offers the second lowest one-bedroom rental rates along with Dubai Investment Park (DIP) and Remraam, where rents range from Dh40,000 to Dh50,000. Many families relocated to Dubailand because of affordable rents in the first quarter of 2015 where one-bedroom apartments are available for Dh45,000 to Dh55,000 per annum. Other areas such as Discovery Gardens, Qusais, Deira, Bur Dubai and select locations of Al Nahda and Al Warqaa are popular among people moving back from the northern emirates.”

Fujairah sees a Real estate renaissance

Economic development in the emirates of Ras Al Khaimah and Fujairah is creating new jobs and, therefore, driving demand for rental units.

“The government of Fujairah has made significant investment in infrastructure improvements, such as at its Fujairah Port and Free Zone, to drive economic activity, and this has resulted in increased demand. Ras Al Khaimah similarly witnessed good levels of residential leasing demand, largely driven by local economic activity from its ports and free zones,” observes John Stevens of Asteco.

“Fujairah is witnessing something of a real estate renaissance in Q1 2015 with strong leasing demand for apartments. Development activity in Fujairah has been most evident in the northern district of Shariya, with sizeable development of studio, one and two-bedroom units. These units rent from Dh20,000 for a studio up to Dh38,000 for a two-bedroom unit and appeal to the affordable segments of the market,” he adds.

A further 250 apartments are scheduled for completion by the end of 2015, with a similar volume of new units in the pipeline for 2016 in Fujairah.

“Fujairah and Ras Al Khaimah have not seen much change in rents. However, growth seems to have stabilised. One can rent a sea-view one-bedroom apartment for Dh48,000 in Ras Al Khaimah compared with Dh120,000 in Dubai,” says Simon Gray of Chestertons Mena.

“With the opening of Mohammed bin Zayed Road, travelling between the emirates is easy. On an average, the approximate rent for a two-bedroom apartment in Fujairah would be around Dh35,000 per year while in Ras Al Khaimah, it would be around Dh45,000 per year for a similar unit,” informs Niraj Masand of Banke International.


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