Rental rates key to market stability

29 May 2014

If landlords continue to push up rents in Sharjah, they risk hurting the current growth in the market

In 2009, Dubai effectively shrunk in size. Plummeting property prices and rental rates meant people who had previously been squeezed out of the more expensive central areas of the city were able to move back in.

The inflation in Dubai’s property prices over the past year is reversing the trend. The hope that has accelerated the rebound in Dubai’s real estate market is once again pricing people out of the city’s core and forcing them to look for more affordable accommodation in less prime locations.

One of the main beneficiaries of this migration is the neighbouring emirate of Sharjah, which is a popular destination for people looking for good-quality accommodation at more affordable prices. The bargains may be short-lived, however, as the pick-up in demand for accommodation in Sharjah has been so strong that in areas on the Dubai border, such as Al-Nahda, rental rates have increased by close to 40 per cent over the past year.

While rising rentals is bad for tenants, they do create opportunities for developers, and the private sector is now looking to develop new projects to capitalise on the excess demand.

For those schemes to be successful in the long term, the market has to be sustainable. The fact that so many people have already been marginalised by rising prices in Dubai suggests demand is not as elastic as many developers would like.

The reality is that while the market was able to digest a sharp spike in rentals last year, it will struggle to do the same again. If landlords and developers focus on the short term and take advantage of tenants by gouging the market in the coming year, they risk destroying the growth they have waited for so long to return.

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