Nowadays, in the local newspapers one can read about rising rents in Dubai, both residential and commercial. Tenants are complaining of landlords who demand higher rents and hand out eviction notes prior to contracts expiration. News reporters state that real estate brokerages will hire more staff due to rising demand for their services. During the few off-plan project launches by the state-backed property developer Emaar, speculators presumably bagged premiums of between 10% and 35% on the announced purchasing prices. Even international property investments advisory firms like JLL reported that finally during the first quarter of 2013, the Dubai’s real estate market demonstrated signs of reversing cycle.
One can get the impression that Dubai is full of people eager to rent or buy homes.
However, when you look outside of the window of your home or office, but not of your PC, you can see countless new apartment buildings. In the evenings they remain dark.
Confusion arise: why the rents are going up, if many apartments and even whole buildings are empty? Maybe there is something you don’t understand or something you are not aware of…. Your landlord is asking for 10,000 Dhs more this year, but in the building next to the one you live in at least 10 apartments are vacant.
Let see what the local classifieds website Dubizzle shows. A shocking number of over 45,914 renatal listings are posted for Dubai only. But maybe there is something wrong with the website….You have seen the classifieds numbers in the past showing 39,000 listing, then 42,000 listings and the last time you opened it was 44 thousand something…. However, as of today, the rental listings are 45,914 and still you do not understand why there are so many empty homes and the rents are rising. There is nothing wrong with the Dubzzle website, and on the contrary, it gets better by the day.
Now lets go for a walk in the Downtown Dubai – a beautiful, very clean and well organised residential community in the hearth of Dubai. In addition, it is said and believed to be the priciest one in the city. Few years ago, the Downtown Dubai consisted of a handfull of buildings and the rents were extremely high. Back in 2007 and 2008, the rent for one bedroom apartment was around 165,000 Dhs ($44,836). At the time, Dubai’s property market was booming and money are figuratively speaking flying around. So, people did not hesitated to spend. But that days are now in the distant past. Since the financial crisis eruption, the world is slightly different place. And the Downtown Dubai is no exception of the case. Now the very same 1 bedroom apartment is rented out for 80,000 Dhs, if it is rented at all, despite asking for 110,000 Dhs rent.
Now in the area, one may see many many buildings. The older among them are barely 6 or seven years old, which by international standards is still new. The newer towers became operational just few weeks ago and many apartments are still to be handed to their owners.
Some of the residential complexes like the three Burj Views towers consist of approximately 750 apartments. The Old Town Dubai district is home to another nearly a 1000 residential units. However, until today many apartments in the already mentioned buildings remain vacant. The rents have been up and down through the years, although since 2011 there is a slight upward movement from the bottom. For example, during the summer of 2011, a 2 bedroom apartment in the Burj Views towers was rented for an average 90,000 Dhs or even 85,000 Dhs, while today the listed rental value for it is on average 120,000 Dhs. This is about 25% increase for a period of nearly two years. Elsewhere in Old Town Dubai, the rents did not move much. Two bedroom apartments were rented for 115,000 Dhs back in 2011 and now you can bargain for the same amount on location. However, when you browse the classified ads you may see even rents of 175,000 for the same 2 bedroom apartments. This are individual cases as every landlord and real estate agent tries to make the best profit out of the property they manage.
When the property owners receive the keys of their new property, they are usually exited, because they have waited long time and they paid a lot for their possession. Naturally, they view their apartments as expensive and ask for high rents. This is why now you can find listings for the brand new apartments in the recently released towers in Downtown Dubai asking fantastic rents of 160,000 Dhs for 2 bedroom apartments. In the same buildings, however, you can find the very same apartments, only on another floor, vacant with a rent tag of 119,000 Dhs, if you bother to go there and ask.
The new buildings we are talking about are 10 and all of them are situated on the boulevard, and all of them are tall towers with hundreds of newly released to the market vacant apartments. All together, the fresh residential supply in the Downtown Dubai could stand at approximately 2,000 new unitis at present.
This is why now rents are slightly falling. If you monitor the classifieds listings on daily basis, you can note down few units and periodically check their rents as we did. You will find out that an apartment that was listed 2 weeks ago with a rent tag 130,000 Dhs, now is offered for 120,000. But if you walk to the buildings and meet a standby real estate agent you could be even luckier and find the same apartment for less.
This situation is perfectly normal. With the release of tremendous amount of new residential units, the older apartments do not seem so attractive to prospective tenants any longer. Everyone prefers to live in a new home, where he would be the first tenant. Therefore, the rents in the older residential buildings in the Downtown Dubai will fall even further until the new buildings are fully rented. This will not happen overnight.
In addition, now there are so many vacant units that is even hard to select the one right for you. There is no urgency for the tenant to close a deal. On the contrary, the tenant has the upper hand in the negotiation, because there is too much on offer. So, if you are a tenant, bargain hard! Landlords have no much choice right now. They either have to agree of you can rent else where from someone who agrees on your fair proposal.
Now while the supply is still freshly released, the owners and the real estate brockers are trying to keep the rents high, because they have a brand new commodity. This is why you may see rent for 2 bedroom apartments in the range of 160,000 Dhs. But now is only May, not even the beginning of the summer, which is traditionally a slow business season. Most of the Dubai-based companies are not hiring during the summer and expat families are even leaving by the end of the school year in June. Most of the new apartments will remain vacant for a long time. Some owners will struggle to keep up with the mortgage payments and will revise their expectations. Rents in Downtown Dubai will fall further and still many units will remain vacant.
