With rents still falling, landlords’ investment returns could be feeling some kind of pressure
As rents continue to fall, landlords are seeing slower returns on investment.
Dubai: The days of making a quick buck from Dubai’s buy-to-let market are gone, with landlords now feeling the pressure from rental declines.
A new research by Propertyfinder Group indicates that a number of property owners are seeing a slight slump in their rental incomes, as falling rents drag down yields for apartments and villas.
Average rents across properties in Dubai have been in a downtrend as demand for accommodations fell, along with the decline in oil prices and job openings, coupled with a huge supply inventory.
As of March this year, apartment rents dropped by as much as 10.8 per cent compared to just six months earlier. Price cuts were recorded even in popular communities, such as The Palm Jumeirah, where rents fell 5.8 per cent and Downtown Dubai, down by 4.7 per cent.
And, as there is less money coming into landlords’ pockets, returns fell. According to Propertyfinder, investors are seeing rental yields decline slightly in the majority of locations in Dubai, including Discovery Gardens, Dubai Silicon Oasis, Greens, International City, Arabian Ranches, Dubai Sports City and Emirates Hills, among many others, according to Propertyfinder Group.
Out of the 23 apartment communities tracked down for the study, 15 saw rental yields fall by an average of less than 1 per cent in March 2017 compared to September 2016.
“Yields for UAE buy-to-let investors are in retreat as declines in rental values outpace a slump in sales,” Propertyfinder said in a statement on Monday.
However, landlords in Dubai are still better off compared to their peers in other markets. While they may be in a retreat, the investment returns remain “generous.”
And since investors in the country don’t pay capital gains tax, the local property market remains an excellent option for international investors looking for both investment income and long-term asset appreciation, according to Propertyfinder.
Apartments on the Palm Jumeirah, for example, are still offering rental yields of 5.2 per cent. In other areas like Discovery Gardens, the returns are even higher, at 9.5 per cent, although other less in demand areas, such as Emirates Hills, which offers only an average return of 3.1 per cent, are not as profitable.
“Dubai continues to be a multi-tiered market where the most desirable locations offer the worst rental yields, while the best yields are found in emerging communities surrounded by desert and mass construction,” Propertyfinder said.
“Here, market forces present a neat risk versus reward synopsis. Blue Chip communities for investors are deemed to be safer and, despite their popularity, have a relatively smaller pool of well-heeled tenants who can afford over 120 dirhams per square foot per annum in rent.”
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