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Rental growth in Dubai perseveres, thanks to population boom

Demand from residents and future visitors keeps the industry afloat

Dubai could have a 5 million population by 2030 (Image from Dentons.com)

While 2015 had been a tough year for the property market in Dubai, the long-term outlook for the sector is positive, according to some analysts.

Dubai reported falling prices and reduced demand from Russian and Saudi Arabia-based investors due to the oil crunch and rallying dollar. However, it remains an investment choice for luxury and holiday home buyers, said Bayut.com, a leading property portal in the region, in its annual market report.

The emirate’s diversified economy, a much-improved regulatory environment and realistic rental prices are also holding up the market, amidst official interventions to cool down the sector.

“The government’s restrictive measures enforced in 2013 – including a hike in property registration fees and mortgage caps – began to exhibit significant effects in 2015,” said Bayut.com.

“But the move helped separate serious contenders from one-hit wonders, and helped the market lose the steam it had amassed in 2013 and 2014.”

More: There is hope on the horizon for Dubai real estate

According to a report by Emirates247.com, there is current stability in the Dubai market as local businesses remain confident in expanding their operations and workforce, albeit at a slower pace.

The anticipation to the forthcoming Expo 2020 could significantly impact demand for residential and rental properties as a result in more jobs being created and visitors coming in.

“Although 2016 could be challenging in the short term, with effective regulations in place and the infrastructure investment that is committed as part of Expo 2020, we should see an upturn in the real estate industry in 2017,” said Sidharth Mehta, partner and head of Building, Construction and Real Estate at KPMG Lower Gulf.

Rental yields are well over 7 percent, Bayut.com reported, with the annual rents in apartments averaging at AED137,000 (USD37,300).

Many developers are now tapping into the affordable housing segment, resulting in the growing popularity of affordable communities of International City, Dubailand, Silicon Oasis, and others.

More: How Abu Dhabi could replace Dubai as UAE’s investment haven

Overall, Dubai added 13,500 apartment units and 800 villas in its residential market, with many buyers using their investments to rent out the units.

John Stevens, managing director of Asteco, a real estate consultancy firm, told the Saudi Gazette that rental demand would be led by the affordable segment. He also cited the infrastructure projects such as Dubai World Central Airport could boost demand as the number of residents and travellers increase.

To date, Dubai has a population of 2.46 million, per Dubai Statistics Centre, but that could double to about 5 million by 2030, Gulf Business reported.

Calls for more affordable rental units are also loud in neighbouring Abu Dhabi as demand continues to increase, especially for studio apartments. The average annual rent for a studio unit in the emirate grew from AED49,000 (USD13,340) at the end of 2014 to AED64,000 (USD17,420) in December 2015.

“Abu Dhabi appears to be sailing smoothly but needs to proactively tend to growing concerns of a lack of affordable options. The growth in the emirate’s industrial, tourism and hospitality sectors are boosting demand in the real estate sector and the government’s resolve to keep improving the infrastructure provides ample confidence,” said Bayut.com.

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