Residential rents in Dubai now on par with Sharjah

Medium & long-term investments are vital for the growth of Dubai property market, says Mr. Andrew Delport, COO, First Real Estate Brokers

The global economic debacle has had its repercussions on the UAE property sector. The reverberations are significant since real estate, in recent years has emerged as one of the mainstays of the UAE economy having contributed 8% to the national GDP in 2007. Due to the enormity of some of the projects currently under development in Dubai, the financial crisis has evoked concerns about the resilience of the Dubai property sector as well as the future of its leasing/ rental segment. In a wide-ranging discussion with our Content Management & Research Wing, Mr. Andrew Delport, Chief Operating Officer, First Gowealthy Real Estate Brokers, highlights the changing trends in the emirate's rental sector, besides discerning numerous opportunities for both home/office hunters and property owners.

Mr. Andrew Delport has been involved in the property industry since 1987 with specific experience in the Residential & Commercial property arena, including Property & Asset Management as a focus to Fund Management. He joined First Gowealthy Real Estate Brokers as the COO from 15^th December 2008 to spearhead the Leasing Business Unit as a further branch to the Property Management, Facilities and Residence Association services to be provided as a professional entity.

Q: Has the ongoing price correction in the Dubai property market affected the emirate's leasing sector? Do you perceive a rise in demand for rentals, in the market as a result of fluctuating property sales?

A: Most owners of individual residential units are experiencing the immediate need to lease their property for (a) much needed liquidity and/or (b) to service a mortgage commitment. For this reason, the real calculation of return on investment is a remote thought, perhaps not even known to the property owner. If the return on investment was of any importance to the owner, we would have seen a higher degree of stabilization in falling rentals. The mere free-fall of rental values demonstrated that liquidity for own purpose and/or mortgage commitments are very evident, therefore the sharp fall in market rentals.   

The imbalance between demand and supply needs correction and for now, supply outweighs demand by far. The recent drop in rentals have raised an opportunity for tenants to spread their accommodation needs and living in Sharjah and Ajman is now just as affordable as living in JLT, International City and Discovery Gardens.

 

Q: Will the revised rental index to be released shortly by the RERA have any bearing on the rents in Dubai?

A: For any report to be accurate, a great level of stability is required. With the recent sharp decline in open market rentals, almost on a daily basis, any accurate composition of rental index is very difficult. I believe that the RERA index will most probably record accuracy up to two or three weeks prior to the release of the report. Meanwhile, rentals have slid even further in the recent weeks. 

The result of the above is that the RERA index would record rentals at a higher level than currently in place and this may benefit the market whereas potential tenants would see this as an urgency to commit at the "lower" rental known in the open market.

 

Q: Does the UAE's legal system guarantee adequate protection to both landlords and tenants? Is further transparency in landlord-tenant relations required?

A: This subject requires much more debate in terms of establishing true legal protection for both parties. Here I refer to the "champions" of the industry should offer it's skills and experience to RERA to gather and gain much needed input as to the structure of an open market property system.

 

Q: Does increased government surveillance and involvement in the domestic real estate sector augur well for the rental segment?

A: If the correct collection of information, data, systems, legal processes and procedures are put in place, then the market will feel completely guided by a legal body. At this stage, a great deal of uncertainty prevails in the market. 

 

Q: Given the latest accounts of project cancellations and employee layoffs, is there still a market for high-end rentals in the UAE?

A: The conclusion of high-end rentals is far and in between. The demand for rentals is now very evident in the apartment node, followed by villas and high-end rentals thereafter.

 

Q: According to a recent report by EFG Hermes, rents in Dubai are expected to drop by 20% to 50% in 2009 from peak levels last year. Please comment.

A: Yes, this is true. For the same residential apartment, we have seen rentals commencing at AED 125,000 per annum beginning January 2009 and falling to AED 65,000 in mid-March 2009.

 

Q: Is the recently introduced 12-cheque payment scheme by landlords a step in the right direction? Has it been a stabilizing influence on the rental market?

A: With the current shortage of liquidity, potential tenants are forced to re-address their financial position. This in return has forced the landlord to re-focus on making the property more affordable for the tenant. The introduction of 12-cheque payments has certainly benefited the market.

 

Q: Where do you place Dubai rental market, 5 years down the road?

A: Fiscal year 2009 will settle down flowing into 2010 with a real recovery for 2011 in forecast. During this period, genuine investors will evaluate property investment on a medium to long term basis, thereby applying financial instruments to assess their asset class and pay conscious attention to real return on investment.

 

 

Prepared by Mini Sreenarayanan
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