Dubai’s residential rents will continue to grow in 2014 until they are offset by additional supply in the market, according to an industry expert.
“I don’t think there are any chances of rents coming down but you will see the rental growth slow and this quarter we had just a three per cent increase, down from what we saw during previous years,” said Mat Green, head of research and consultancy at CBRE Middle East.
“We are not expecting to see the same level of growth that we saw in 2013 but rents are going to go up until enough supply comes through and I don’t think that (supply) is happening in the short term.”
According to the latest research from CBRE, the emirate’s residential rents grew 22 per cent year-on-year in Q1 2014. Apartment rents surged 29 per cent while villa rentals rose 15 per cent in the first few month this year, the report said.
However, quarter-on-quarter rental growth slowed to 2.8 per cent in Q1 2014 with apartments rising just three per cent and villas by 2.6 per cent. This trend is expected to continue throughout the year, Green noted.
“Supply and demand governs what the current rental rate would be,” he said.
“Now the only way for rents to come down is sufficient supply to come into the market so that people have a choice about where to go and stay and what level of rent they want to pay. It’s normal in any market to let supply and demand determine rents.”
Around 65,000 new residential units are penned for completion over the next few years, according to CBRE.
Green said that the rising rental rates, though justified, will have wider impacts on the economy.
“Dubai is becoming a more expensive place to live and we need to keep an eye on theses pressures. There is some justification for this as we have seen GDP growth in the UAE and events like Expo have only accentuated that,” he said.
“But we need to keep any eye on where prices are going and where the cost of living is going. If Dubai starts to lose its competitiveness, then that can also have a knock on impact into other segments.”
The real estate expert suggested the rising cost of living will deter the best talent from coming to Dubai, as it might not be affordable anymore. It will also impact firms which will be forced to compensate for inflationary pressures.
“As cost of living increases, it will put pressure on companies since they either have to pay wages to bring in the talent or help out with the housing costs. Both of these are pertinent issues at the moment as there is such a huge growth in rentals,” said Green.
Annual inflation in the UAE edged up 1.9 per cent in March this year, its highest level since March 2010, according to the National Bureau of Statistics.
Housing and utility costs, which account for 39 per cent of consumer expenses, increased 2.4 per cent year-on-year, data showed.
“Real estate is cyclical and at some point there needs to be some kind of change in prices,” said Green.
“But at the moment it is not something that we see in the short term. If it gets to a point where too many people are not able to afford these rents then that will have a negative impact on Dubai’s growth because people will not be able to afford to be here.”