With the rent increases in Dubai over the past few months, is now receding. Comparing two advertisements, first published in early January 2009 against the August 2008 ad, reveals a drop in by 17% among several districts : International City, Jumeirah Lakes Towers (JLT), Dubai Marina, Discovery Gardens, Bur Dubai, Deira, Al Qusais, Al Nahda and Al Muraqqabat. International City saw a 17% and a 27% drop in the one-bedroom units and two-bedroom units respectively, though there was only an 8% rental drop for studios. At JLT and Dubai Marina, rents have slipped but at a much smaller rate during the same period, an average of 9%, while the Discovery Gardens saw the biggest slide in average rents in the one- and two-bedroom units, with each unit down by over 25%.

A research conducted by a press agency – In September 2008, an Indian broker took a mortgage from Amlak Finance for a AED 1 million studio unit at Sabah Tower 3 at JLT, opposite Dubai Marina. In January, his studio’s market price is down by 25% to between AED 750,000 and AED 800,000. The AED 95,000 rent income currently covers his amortisation.

“At the moment, I feel like I’m losing capital,” an Indian real estate agent said in an interview. “If I put my studio in the market now, I could only get AED 800,000 to AED 850,000, max. The problem is that rents are also going down. Overall, prices at JLT units have dropped nearly 40% from AED 2,200 per square foot in September last year to AED 1,350 to AED 1,500 per square foot today”, he said. “No one is buying, everyone is on a wait-and-see mode,” he further added.

An HSBC report said that from early December 2008, property transactions have dried up and the number of properties available for sale increased by 36% as investors tried to make a quick exit from the UAE. But with up to 60,000 people expected to lose their jobs in the Gulf by March 2009 and with many residential projects such as Discovery Gardens and Jumeirah Beach Residence still half-empty, the Emirate’s real estate industry has yet to see the bottom, other brokers said.

One of the real estate broker, blames speculators for the property sector’s overheating.  “I’ve never seen rents drop at all in my four-year career as a broker, until now,” said Magnani of Rocky Real Estate. “Yes, we made money out of these quick deals from speculators, but the downside is we’ve become victims ourselves because we also need to rent a space for ourselves.”

Elizabeth Sellwood, Vice Chairman of Real Estate Specialists, said: “Dubai has experienced rental increases anywhere from 10% to 15% a month in the past year. We are now seeing prices either remaining the same or going down slightly.” Carlos Abourjeily, a Lebanese property broker with Engel and Volkers in Dubai, said he has not made a sale in the last few months. “No one is buying, and rents are quite volatile too. There’s been a softening of rents but this depends on the quality of property and location,” said Abourjeily.

The slump has caused a 45% drop in the prices of villas, which have also been affected by Dubai Muncipality’s ban on single people sharing a villa. “This is not a meltdown,” insisted Abourjeily, “but a sign of maturity. Not all areas are seeing a drop in rental price. As for sales, they have totally gone dry. Nobody’s buying because people are waiting for prices to go down.”

Syed Adnan, an Indian property broker, said while it’s a bad time for speculators, it’s a good time for end-users. “In the beginning, the Dubai plan was great. For the low-end, there’s International City. For mid-range, there was the JLT, Marina and Discovery Gardens. For the high-end, there were the Springs, Meadows, Arabian Ranches. “At AED 270,000 introductory price for a studio at International City, it was affordable for the lower middle-class people to buy. Even if someone sells a studio for AED 450,000 now, he would still make a hefty profit,” said Adnan. With more choices available and rents starting to fall, renters are now in a position to negotiate, especially on the one- to two-cheque policy, Abdul Mutalib, a broker in Faisal Al Awai Real Estate, said. “Before, any property we advertised would go in less than a week, even a day. But now we have to wait for up to one month before it is booked,” he said.

Sharjah, where rents have gone down by 10%, has followed Dubai’s lead, said Rashid Kazi, Sales Manager of Moon Home which specialises in Sharjah. “There’s a lot of property available in the market but there are no tenants. The market is volatile with so much uncertainty.”

Among the other startling revelations from the study, annual rents for villas in Arabian Ranches have dropped by an average of AED 50,000 to AED 60,000. Three-bedroom apartments in Jumeirah Lake Towers have seen a drop of AED 250,000 to AED 200,000. The drop in rent of a waterfront villa on Palm Jumeirah was pegged at AED 360,000 to AED 240,000. Landlords in Downtown Burj Dubai, who were asking between AED 180,000 and AED 200,000 a year in rent for a one-bedroom apartment in September last year, are now willing to rent out a two-bedroom apartment for the same amount.

Residents in Dubai are in limbo over the rent cap for 2009, which is yet to be announced. Mohammad Ahmad Al Shaikh, Secretary General of Dubai Rent Committee, said: “We’re still waiting for an official announcement on this matter.” The 15% rent cap in 2006 was reduced to 7% in 2007 and further slashed to 5% in 2008. Al Shaikh said rental disputes jumped by more than 12% with 9,000 cases in 2008, from about 8,000 cases recorded in 2007.

Rental facts:
Dh50,000 to Dh60,000: The amount by which rents for villas in Arabian Ranches have dropped.
Dh250,000 to Dh200,000: The drop in rent for three-bedroom apartments in Jumeirah Lake Towers.
Dh360,000 to Dh240,000: The drop in rent of a waterfront villa on Palm Jumeirah. Landlords in Downtown Burj Dubai, who were asking between Dh180,000 and Dh200,000 a year in rent for a one-bedroom apartment in September last year, are now willing to rent out a two-bedroom apartment for the same amount.