Tenants Benefit from Oversupply of Real Estate in UAE

Dubai’s construction boom that lasted over six years has definitely come to an end, and although work has resumed somewhat in the construction sector, almost everyone agrees that the pace will never again match the glory days of the past.

Indeed, many projects were left abandoned as it became common knowledge that the downturn was evident. Expatriates left Dubai in droves, leaving behind unpaid bills and their cars at the airport. As work has resumed, it has become evident that it is better to recover the costs sunk in the unfinished projects than leave them uncompleted. At least cost and profit margins would both be recovered on the sale or rental of these project units to their owners, renters or investors. Owing to the euphoria of the past, deliveries of residential units will be about 20,000 more than the demand in 2010. The ultimate result would be a further fall in the prices of these units. Some signs of this are already evident, as rents in the northern emirates have dropped considerably since 2009, in the face of fresh supply and low demand.

Even the rental rates have dropped by around 30 percent. This trend is likely to continue into the first half of 2010, due to fundamentally weak demand in the face of a huge supply from within the northern emirates and the border areas of Dubai- among them Muhaisanah, Al Ghusais and Al Nahda.

The demand is low, almost non-existent in the market, although the rental market is seeing some movement, mainly from tenants seeking better quality property. The maximum decline in rentals was observed in the case of single bedroom apartments, which dropped 34 percent, while double and triple bedroom apartments dropped 29 percent and 25 percent respectively. This drop may be largely due to people opting for larger flats with lower rent on offer in comparison to previous months.

Meanwhile, the emirates of Ajman and Ras Al Khaimah also saw a drop in values by 50 percent or more for off-plan properties. Gaps between rental rates however remain the same among various northern emirates. Sharjah continued to demand the highest rentals, followed by Ras Al Khaimah, Ajman, Fujairah and finally Umm Al Quwain, the most affordable northern emirate. Work on projects in Ras Al Khaimah has been moving quickly, compared to those in Sharjah and Ajman which are progressing very slowly.

With more residents choosing to move to the border areas of Dubai, where there is better quality stock and competitive rental rates, the leasing rates across the northern emirates continue to decline in 2010.

A high percent of residential accommodation is offered by the northern emirates, which has stemmed from growth and development in Dubai. But this in turn has caused higher expectations for new units.

To prevent any loss of tenants, landlords in the northern emirates have been offering sweeteners like rent-free periods of one to two months, free parking spaces, free chiller and other such incentives.