Dubai’s rental values fell marginally in December after experiencing a yearlong upward run. Even though the realty market suffered a bit in 2015 hot on the heels of news of 25,000 units expected to flood the market in 2015, the fact of the matter was that close to 8,000 units actually saw the light of the day. On the contrary, the real estate market in Abu Dhabi saw a 1% spike in rents in December, as a limited supply of units and a gradual rise in working population continued to put pressure on rental values.
In December 2015, Dubai passed a zero-deficit budget with planned 12% spending increase in social and development sectors. The official announcement has been a welcome news for realty market and its stakeholders, who saw the general investor sentiment get affected by persistent rumours of a possible reduction in government spending. With the news of a spending increase, we can expect the rumour mongering to end and the sentiment taking a positive turn.
Dubai
The new residential units finalized in 2015 led to lower rents in specific categories in Dubai per expectations. This trend was evident in December as was witnessed after a decrease in demand near the end of 2015. The drop in demand could be a result of a general slowdown in trading that occurs at year ends, when important buying/selling decisions are postponed until the first month of a new year.
Bayut’s December 2015 to December 2014 study showed that average apartment rents in Dubai went up 2.14% at the end of 2015, although the percentage dropped by 1.3% on a month-on-month (Nov/Dec) basis.
The monthly average rents in December slid 4% in the studio apartment category, but remained stable in the 1-bed category. Compared to November 2015, the monthly rents fell 5%, 1% and 4% for 2, 3 and 4+ bed apartments, respectively.
In December 2015, studio apartments drew rents of AED 61,000 on average, while rents for 1-bed apartments averaged around AED 102,000. Meanwhile, 2-bed apartments averaged AED 153,000 in rents, 3-bed apartments averaged AED 211,000 and rents for 4+ bed apartments were close to AED 328,000 on average.
As far as yields go, overall apartments rents in Dubai offered a return of over 5%. Category wise, studio apartments yielded 7%, 1-bed apartments yielded 6%, while 2-bed apartments offered a rental yield of 5%. Moreover, 3 and 4+ bed apartments yielded 5% and 3%, respectively.
Abu Dhabi
Although rents dropped in Dubai by the end of December, Abu Dhabi continued to post hikes with a 1% rise in rents in December 2015, compared with November 2015.
The consistently rising rental values in UAE’s capital are somewhat becoming a matter of concern in the absence of a rental cap or rental increase calculator. The limited supply coupled with an increasing workforce is adding to housing demand and putting an obvious upward pressure on rental values. Abu Dhabi authorities have been looking to imitate Dubai’s rental index to provide a roadmap for landlords in connection with hike in rents and were expected to launch it by the year-end. However, no formal announcement has come in this regard until now.
Category wise, Abu Dhabi’s studio apartment rents posted a 5% drop in values in December 2015 in contrast with the 4% rise they registered in November 2015.
Monthly rents for 1-bed apartments remained steady in December, while a 6% increase was seen in the 2-bed apartment category. Average rents for 3-bed apartments decreased slightly by 1%, but the real value for money was provided by the 4+ bed category, which showed a tremendous 15% rise in rental value in December.
In the studio apartment category, rents averaged AED 64,000 in December, 1-bed apartments rents stood at AED 101,000, while 2-bed apartments averaged AED 142,000. In addition, 3- and 4+ bed apartments commanded rents of AED 189,000 and AED 299,000, respectively.
Apartments in Abu Dhabi are becoming increasingly attractive to investors with an overall rental yields of 7%. Segment wise, studio apartments provided the best rental yields at 9%, 1-bed apartments yielded 8% and 2-bed units offered a yield of 7%. Yields for 3- and 4+ bed apartments were registered at 7% and 6%, respectively.
Our Take
Despite a global economic slowdown and a persistent oil price crunch, Dubai has managed to hold steady owing to its economic diversification. The emirate’s growing financial, tourism, real estate, and hospitality sectors have enabled Dubai to manoeuvre its economy away from oil dependency, thus managing to sustain the international economic turbulence.
An uninterrupted creation of employment options has proven beneficial to the realty sector, which is obvious from the growing demand for both commercial and residential rental spaces. Bayut feels a growth in demand for rental spaces in Dubai will keep rents stable. Realty activity is likely to pick up in the latter half of the year when work on most development projects earmarked for Expo 2020 begins.
On the other hand, demand in Abu Dhabi’s real estate market will continue to rise, even though concerns have been voiced in support of affordable housing. Since the capital is making considerable leaps with regards to industrial, financial and logistics sectors, the demand for additional housing units will likely rise.
The real estate market in both emirates seems promising. The real estate markets in both Dubai and Abu Dhabi are headed along the path to success and are more than capable of handling the few hurdles that occur along the way.
