Commercial

Expert Opinion: The Rental Market in the UAE

The real estate market in the UAE over the last year has seen a serious decline on both the sales and rental fronts. In most areas, we have observed declines in rents between 14% and 18%, with some areas reaching a 20% drop year on year. In contrast, commercial property rents have stabilized compared to last year due to a comparatively limited supply.

The two main reasons for the decline in rents in the UAE residential rental market are oversupply and increased departures of expats due to the cost of living. With the rising cost of living, more people are either scaling back their lifestyle or leaving the UAE. This, coupled with the increase in supply has led to a renters’ market, where landlords need to reduce rents in order to prevent their properties lying vacant. The implementation of the Value Added Tax (VAT) has further curtailed the spending power of UAE residents and though VAT is not applicable in the UAE for renting residential properties, its indirect effect has driven up costs and made people be more careful with money.

Though we may see further drops in sales prices in the future, especially with the popularity of off-plan offerings in recent years, rental prices appear to be reaching equilibrium. It is possible that rents will stabilize soon and perhaps even show a small increase from Q2 2019 onwards due to Expo 2020, but it’s hard to say with any certainty. The biggest question right now is the Expo 2020 itself and what will be the state of the market after the Expo is over.

As we can see an overall decline of up to 18% in the rental market, calling the current trend a ‘correction’ or ‘healthy’ is very tricky. The additional downward pressure from the introduction of VAT has not helped the situation either. What we have observed is that the rate of decline has gotten better; indicating that we are coming to the bottom of the current property cycle though when we will see upwards movement is uncertain. However, investor sentiment in the market is more optimistic, buoyed by new projects and recent government announcements such as the liberalization of investment laws and changes to the visa rules in the UAE. These changes have been sorely needed in the market and their speedy implementation will revitalize the UAE’s economy.

These announcements, though extremely welcome, need to be the beginning for comprehensive changes in the way the UAE does business. There are still major hurdles in the market such as limited access to credit, which is a major stumbling block for new buyers in the UAE. Implementing steps such as liberalizing finance rules slightly and improving the Loan to Value ratio for expat mortgages can do a lot to open up the market to first time buyers and help boost the real estate market in the UAE.

Land Sterling is a market leading property consultancy headquartered in Dubai specializing in international commercial real estate services. To find out more contact us at info@landsterling.com or call us on +971 43 808 707.