Residential rents in Dubai, where the majority of the population is foreign, declined the most on a monthly basis since the property peak of two years ago, according to Phidar Advisory.
“Landlords are finding it more difficult to rent homes, especially larger and more expensive ones,” according to Jesse Downs, managing director at Phidar, an advisory firm specialising in real estate. That is mostly due to “recent job losses and a decline in job-growth rates.”
Home rents fell by 1.3% in May, the biggest drop since May 2014, Downs said in a phone interview on Sunday. Since the peak, home rents have fallen at a compound monthly rate of 0.3%.
The decline signals further weakness in rents and prices ahead, Downs said. Dubai is experiencing a delayed economic impact to the collapse in oil prices that has led some companies to reduce spending and trim their workforce. Many of those who lost their jobs, such as some banking and oil services employees, chose to remain in the city until the end of school year, she said.
“I’d be surprised if rents dropped by 10% to 15% between now and September, as that would suggest the impact of job cuts in Dubai was more aggressive that we thought,” said Asjad Yahya, the Dubai-based head of research at Shuaa Capital. Rents will probably drop another 5% over the summer months, he said.
While confidence in the economy and clients’ willingness to spend improved in May compared with previous months, employment growth was modest, according to an Emirates NBD Dubai Economy Tracker Index published on June 9. Firms continued to cut prices to secure new work even as costs rose, putting profit margins under pressure, according to the report.
Home rents and prices could start rising in the fourth quarter if there isn’t a sudden spike in the US dollar’s value or another sharp decline in oil, Shuaa’s Yahya said. Dubai’s currency, the UAE dirham, is pegged to the dollar.
The bottom limits of asked residential rents dropped by 4.1% by the beginning of June compared to the same week in the previous month, according to Phidar.
“This is a significant shift in rent trends and is an indicator the housing market is about to get significantly more affordable.”