Dubai tenants upgrade as rents drop eight per cent

Though decline is less than the 15 per cent seen in Abu Dhabi, it is still cheaper to commute than live in the capital.

Rental quotes in Dubai Marina are now at a reported Dh42,500 per annum for a one bedroom apartment.

DUBAI // Rents in Dubai have fallen by up to eight per cent in the past three months as more homes come on the market, a report said yesterday. The drop is persuading many tenants to move to upgraded accommodation, Asteco Property Management said.

A report by the same company on Monday said rents in Abu Dhabi were down by 15 per cent in the same period, and for the same reason. But the difference between the two cities is still large enough for many people to live in Dubai and commute to work in Abu Dhabi, analysts said. Yesterday's report described a "knock-on effect" in which tenants moved from areas such as Jumeirah Lakes Towers (JLT) to the upmarket Dubai Marina area.

Down the price chain, those living in Discovery Gardens upgraded to JLT and people in International City sought flats in Discovery Gardens, the report said. "Internal movement in Dubai is at its peak, with tenants looking for upgrades in terms of quality, size or location," said Elaine Jones, Asteco's chief executive. Tenants have long been put off by high rents in the capital, which persuaded many to live in Dubai and put up with the 90-minute commute. But analysts agree that falling rents in Abu Dhabi are still not enough to convince commuters to move there.

"We always look at it at from a benchmark of between 15 and 20 per cent, the premium people are willing to pay in order not to move," said Ian Albert, the regional direct of Colliers International, a property firm. "If it's less than this then you'll see people saying that they'll move back to Abu Dhabi because, even if it's slightly more expensive, it's better than making the commute." The trend could also be perpetuated by general job uncertainty, he said. Even if prices between the capital and Dubai converged, lower rents in Dubai may be seen as a hedge against redundancy.

"If people were more certain about their jobs in Abu Dhabi, thinking that they'd live there for four years, or for a relatively long duration of time, then there'd be less of an inclination to commute," Mr Albert said. Falling rents in Dubai were caused by an increasing supply of apartments and villas, Asteco said. As many as 25,000 new homes will be available by the end of the year. That has caused rents in even the most high-end locations to drop significantly.

The rent for one-bedroom flats in the Downtown Dubai area fell by eight per cent to Dh80,000 a year, the report said. In Dubai Marina, where prices fell by the same amount, the rent was Dh65,000. "It's not healthy to flood the market with as much stock as is due to hit the market," said Chris Waight, the head of residential valuation at the international property firm Cluttons. He said that developers may continue to withhold handing over completed projects to stabilise the market.

That would be a welcome move for some property owners in Discovery Gardens, where there is concern over falling rents. "The people who are trying to rent out their apartments here, they don't know what they're going to do," said Kishore Babu, a 47-year-old Indian who bought a one-bedroom apartment in Discovery Gardens in 2007. He said a friend bought a flat in the area for Dh1.3 million, and his Dh7,000 monthly mortgage payments are about double what he can earn from rent.

"He is just losing money," he said. "I mean, he's got somebody living there but the rents are still dropping. Nobody wants to buy here. They just want to rent and that's it." [e-mail]