Friday, April 20, 2007

Dubai rentals demand higher than supply

Dubai rental demand remains higher than supply and that a significant drop in rents is wishful thinking. Jumeirah Beach Residence recently announced that 6,500 units are soon to be handed over, targeting approximately 20,000 residents. Other projects, such as International City, have already launched some phases – 15,400 units will be delivered by the end of this year. The Discovery Gardens will deliver 17,500 by year end.

The great real estate debate looks set to run and run.With so much supply entering the market, where are the new tenants coming from? Is new property being held back to maintain values, and if so, how long will this last? It is nearly impossible to live in Dubai these days and avoid being asked these questions. And property consultants, of course, are expected to have all the answers.

So here goes. Keeping units vacant to try to manipulate prices does not help anybody in the long run, so withhold ing property is not practical and can only be short-lived. A softening of the market is possible given the number of villas and apartments now opening their doors, but landlords resist as long as possible so any change therefore is unlikely to be immediate.

Publicly available market research, economic forecasts and population trends suggest that some correction is on the horizon, but we are talking medium-term and the impact will vary depending on which sector you are looking at.

There has been a lot of development in high-end residential real estate, but there is still significant demand for more modestly priced accommodation. As Dubai continues to expand, location will also become a more significant factor. Landmarks like Burj Dubai, The Palm Jumeirah and the city’s free zones such as DIFC will create their own dynamic of supply and demand.

The hectic pace of life in Dubai alone suggests that a major correction in rents is hardly imminent. The arrival in the Emirates of some of the world’s largest property companies is also a vote of confidence in the local market.

For years people have been asking when Dubai’s economic growth will slow, so it comes as no surprise that the state of Dubai real estate should provoke an equally long-running debate. My bet is that Dubai property will prove as resilient as its economy.

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