UAE rent falls to stimulate the economy

A one-bedroom apartment in The Greens, Dubai has just been rented out for $17,700, exactly half the rent it commanded a year ago. Bad news for the landlord but money in the pocket of the young executive that decided to move apartment to get a bargain this summer.

This is going to be good for UAE consumer spending, and partly compensate for an expected fall in population as expatriate employment contracts are terminated over the hot months.

For the UAE has felt the full impact of the global economic crisis with last autumn’s liquidity squeeze and soaring US dollar coming on top of a crash in oil prices.

Real estate correction

The government response has been a textbook mixture of recapitalizing the banks and boosting government expenditure. But this has not been enough to prevent a bursting of the local real estate bubble that has left construction sites abandoned amid scenes like the Asian Financial Crisis of the late 90s.

As construction and real estate employees head back home the advantage for those that remain in jobs is a lower cost of living as the notoriously high Gulf rents have slumped. However, the picture is mixed across the UAE.

A new survey from estate agents Asteco reveals only a modest reduction in Abu Dhabi residential rental prices, while the same survey claims Dubai apartment rents are down by ‘as much as 20 per cent’. That might be true as an average figure but the decline from peak rentals last summer is perhaps the benchmark, and that is more like 30-50 per cent.

Of course, the good news for people renting homes has a bad side for the nationals and expatriates letting those homes for income and investment purposes.

Landlords suffer

They are suffering a decline in rental income. And for those who are trying to precariously balance income and mortgage finance on a now devalued property empire this could prove a fatal blow. If nothing else the rise in income for the renters and the positive impact on the local economy will be partly offset by a decline in income for landlords.

On the other hand, many economists have noted that in the past couple of years that the UAE was in danger of losing its competitive advantage due to soaring rental price inflation, and a correction is clearly in the long term economic interest of the nation. It makes moving to the UAE an attractive option for business and professionals again.