Rental rates in Dubai’s International City are set to slump as developer Nakheel gears up to hand over a further 26 buildings to buyers in the project, property analysts said.
State-backed Nakheel said up to 1,663 units will be released to buyers by the year-end, a move that is likely to squeeze already low rents of around AED15,000 a year for a studio apartment.
“Projects aimed at low and middle-income groups such as International City remain under deflationary pressures,” said Matthew Green, head of research at CB Richard Ellis in Dubai.
“The addition of new supply across the market allows occupiers to upscale and move to newer and better specification units at lease end, often for no additional rental cost.”
Click here to find out more!
At its launch in 2002, International City rates averaged around AED800 per sq ft. In July, Arabian Business reported that rents had tumbled to as little as AED14,000 a year for a studio apartment – more than 50 percent lower than the AED30,000-35,000 bracket recommended in RERA’s first Dubai rental index, published in October 2009.
Dubai, the worst-hit property market in the Gulf, saw house prices more than halve in late-2008 as the financial crash wiped out project funding and brought a halt to its real estate boom.
Nakheel was one of the biggest casualties of the crash, suspending at least 100 projects in the wake of the downturn as it sought to restructure about AED59bn ($16.1bn) of liabilities.
The developer, which split from its parent firm Dubai World in August to become a government entity, said in September it wrote down AED78.6bn ($21.4bn) from the value of its real estate.
International City and Discovery Gardens, both developed by Nakheel, have suffered from plunging rental vales as depressed prices elsewhere in Dubai have led tenants to relocate.
International City residents have long complained about poor infrastructure, the lack of sufficient access to the development, and the proximity of a nearby sewage processing plant.
Priyesh Patel, a broker at Aston Pearl Real Estate in Dubai, said any further declines in price at the development meant “it would not be worth any investor purchasing. Nakheel needs to bring up the standards on this project.”
Landlords in the development will be forced to offer increasing incentives such as rent-free periods and multiple cheques to attract tenants, warned Green at CB Richard Ellis.
“The impact of new units within International City is likely to compound this situation further with a fresh stock of apartments increasing competition in the locale, forcing landlords to reduce rates and increase incentives in order to secure tenancies and avoid the prospect of long rental voids.”
Jones Lang LaSalle said in September that Dubai's property market had shown small signs of recovery with house prices rising in prime areas and the number of transactions rising.
Nakheel said in September it has handed over more than 1,180 homes across Dubai in the last 18 months as its focus shifts from construction to the completion of existing projects.