Construction targets to be met

Article from Gulf News

Article from Gulf News

Dubai-A total of 32,047 residential units are expected to come online this year, providing construction targets are met, according to Colliers International. Apartments are expected to account for 77 percent of the new residential units while villas will make up the rest.

The upcoming supply is set to bring down average rents and put pressure on landlords who, besides contending with lower prices, need to cover maintenance fees through rental yields as quickly as possible.

“In certain areas the increase in supply will potentially have an impact on rent being paid,” said Elaine Jones. Chief executive of Asteco Property management.
Negotiating Power

While tenants have considerably more negotiating power than they did 18 months ago, most landlord still expect payment in three to four cheques.

“The average number of cheques is still three and this has been relatively consistent for the past six months. Of course, there are still rental contracts based on one cheque and 12 cheques, but the majority are two to four cheques,” said Jones.

“During the last quarter, we also witnessed that the distress rentals that so characterized the rental activity of the first two quarters of 2009 have all but disappeared.

“Some landlords are now sticking to their negotiating positions and are more prepared to hold on to their properties and wait for the inevitable recovery,” said Mohanad Alwadiya, managing director of Harbor Real Estate.

“There is a belief that prices have reached realistic rates and there is very little room for price negotiations. Most of the tenants now negotiate payment terms and added value elements.”

Depending on the popularity of the area, certain units lend themselves more to rent negotiation. “If there are high occupancy rate in that particular building or development then there is usually little negotiating room on the rental rate,” Jesse Downs, director of research and advisory services at Landmark Advisory, told Gulf News.

“In this case, landlords tend to prefer to negotiate with the number of cheques or with an additional one month ‘s rent at no charge. For less desirable locations, developments with lower occupancy rates, or new buildings, there is usually more room to negotiate the rental rates. Of course, negotiations depend largely on asking prices.

There is variance in pricing strategies between the different agencies. Some brokerage firms list inventory at inflated levels and bring the rents down in the negotiation stages. Others list their inventory at more realistic rates and have low bid- ask spreads.”

Relocation

A continued trend of relocation from the outer emirates such as Ajman and Sharjah to Dubai can still be seen.

“Given the decline in Dubai rents in 2009, more people who are currently working in Dubai are opting to live in Dubai. As average rents decline, we expect this trend to increase with additional relocation from areas like Sharjah,” said Downs.

The trend seen in the fourth quarter of 2009 is predicted to continue early into 2010 with only a slight change in dynamics during the second quarter, especially when there is a better outlook of recovery, the projected supply and population figures.

A further drive that will affect rental rates is population growth generated by healthy commercial activity.

“Dubai needs to ensure that as the world economy starts to recover, it has positioned itself competitively as a place to do business,” said Alwadiya.

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