Should UAE residents buy property with rents at 10-year low?

Rent drops make it hard for UAE property buyers

Rents in Dubai and Sharjah are now at levels last seen in 2011. As more pressure piles up on rental rates, will residents prefer to remain as tenants rather than turn owners? If that is the majority sentiment, what would it mean for property sales?

This is the dilemma facing prospective end-user buyers… and even investors. With rents in freefall, it could take a year or two for this to stabilize. Many residents would convince themselves they are better off financially to keep renting than take on the additional burden of having to pay off for a new home purchase. Even if they find a home that matches all of their requirements… and within their spending plans.

In just about every neighborhood or community, rents have now dropped to levels that are no longer a burden, even with pay and bonus cuts being the norm. And for those who want to further cut their rental expenses, there are more options available.

Tenant migrations are happening between communities, between emirates and even to buildings within the same area. This is the biggest flow of tenants since 2009-10, and by the looks of it, it still has some way to go.

If so, this will delay any immediate upturn for the local property market. Sales to investors alone will not help drive sales, as more developers get to the completion phase of projects launched in 2017-18. Because the next upturn for the property market will be based on how soon end-users start buying homes.

Recent weeks have seen improvements in property purchases, but it’s still not clear whether this is more because of pent up buying from those who had already planned on picking up a new home. The pandemic has definitely set off interest for more spacious dwellings, especially those that come with a bit of green on the outside.

But for the momentum to sustain and filter down to all property types, developers will need to convince more budget-conscious residents who are still in two minds about whether to buy or sell.

Developers such as Rizwan Sajan of Danube Group insist that with the right financial planning, an end-user getting in now will be able to keep paying his monthly rents… as well as have enough to pay installments on a mid-market property purchase. The rent declines will thus be an incentive to buy – that’s one school of thought popular with developers.

Will end-users be convinced by this argument? There’s already a lot to choose from, with more than 30,000 new homes added in Dubai last year. Based on estimates, this could rise to plus 40,000 units this year – but as always, the eventual number will be based on multiple factors. Not least being the extent of demand.

Property values are not likely to see any immediate spike. Even the gains that happened recently were limited – by 1-2 per cent. Plus, these were restricted to certain neighbourhoods or buildings.

So, the other big question any potential property owner has to face these days? Should he stick with renting and make full use of the low rates on offer? Or should he be thinking of buying now that property values remain under pressure and moving closer to a decade’s low?

They will find there are no easy answers. Until then, developers will keep waiting…