Property supply glut could give Dubai tenants upper hand in 2017

Tenants in Dubai could have the upper hand when negotiating rental rates thanks to a significant amount of stock coming to the market in 2017, according to real estate consultancy Asteco.

Its new report said there are 31,500 apartments and 12,500 villas and townhouses scheduled to be delivered this year in areas including City Walk by Meraas, Damac’s Akoya, Dubai Wharf by Dubai Properties and Emaar’s Mira.

This is in addition to 8,750 apartments and 5,000 villas completed in 2016.

“Tenants will be offered a significant choice of completed properties in 2017 in both established and new communities,” said John Stevens, managing director, Asteco.

“The additional supply will continue to put downward pressure on market rates, which will place the negotiating power firmly in the hands of tenants, despite a forecasted increase in population,” he added.

However, the report said the gap between planned delivery and actual handover can be "worlds apart", which could limit the impact of oversupply and generate modest levels of growth in certain popular communities, he said.

Figures in the Asteco Dubai Real Estate Q4 2016 report support the fact that the balance has been tipped away from landlords and it is the tenants who have the advantage when it comes to negotiating lease terms.

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Although average apartment rental rates declined by 5 percent since the previous quarter and 6 percent over the year, the individual numbers indicate that the market is becoming increasingly fragmented.

While rental rates in certain areas declined, others were more resilient to change and even experienced marginal growth, the report showed.

The majority of areas have seen rental rates for one bedroom apartments drop AED5,000 to AED15,000, it added.

Average villa rents fell by 3 percent over Q4 and 5 percent year-on-year, Asteco said.

The report added that average sales prices remained relatively unchanged over Q4 and for the full year, which Stevens believes “signals the bottoming out of the market”.

Although average sales prices of an apartment in Dubai Marina dropped compared with 2015, rates rose marginally over the quarter.

In line with the apartment sector, average villa sale prices were generally flat over the last quarter, while the overall average annual drop was minimal at 2 percent.

Stevens said: “Market sentiment is expected to improve on the back of increased government spending on infrastructure, hospitality and retail projects, which will have a positive effect on demand for real estate in Dubai.

“The sales market will be increasingly driven by long-term investors and owner-occupiers and the rise in first time buyers will continue throughout 2017 as people take a long-term view to living in Dubai.”

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