This is not a headline any of us want to hear but it is reality and we have to deal with it.
The truth is that 2017 has been a difficult year for the rental market on the Palm Jumeirah and here are my thoughts as to why.
There are number of reasons for this price decline ranging from the the macro economy to more local reasons. I’ll start with the reasons that are more specific to the Palm.
1. Palm Jumeirah speeds up construction to meet 2020 deadline.
A couple of years a go we all heard a rumour that Shaikh Mohamed had given Nakheel an ultimatum to get Palm Jumeirah finished before 2020. This might have been hearsay but nevertheless it is an undisputable fact that since that day the Palm has come on leaps and bounds. The Nakheel Mall is slated to open in the second quarter of 2018 , the Viceroy ( 5 The Palm) was handed over, The Dukes opened, the Balqis is ready for handover , and the Golden Mile Galleria opened it’s doors. Go onto the crescent and the pace of construction is immense ( as witnessed by the traffic at 6pm when construction workers clock off).
This is all positive news in the long run but the extra stock is taking time to absorb and has put pressure on the older stock as people move to newer apartments. There simply is a greater supply these days and that means one thing… price reductions!
2. Other areas can now compete with the Palm Jumeirah
In the last price decline, around 2009, the Palm was pretty unique and although there were declines people still had far fewer choices when looking for comparable places to live. Dubai has come a long way in the last 8 years with so many new projects attracting renters hard earned cash. Downtown and City Walk are just two exceptional developments that now have their own following and offer the type of apartments that high earners are looking for. At the entry level price for Palm Jumeirah, say AED 100k per annum, there is even more choice available in the broader market as the Marina and JBR continue to be a big draw.
Simply, there is just a lot more choice out there and tenants are tempted towards the newer stock in other areas. The Shorelines are now 10 years old and every year there is new stock coming to the market making the older properties less attractive.
The shorelines will always have the added advantage of being on the beach but we are now seeing that after 10 years the lure of a brand new apartment is pulling the usual shoreline tenants to other locations.
3. The Value for money principle
The villas on Palm Jumeirah that are for rent are in the same boat as the Shoreline apartments. They are getting old ( and shabby in some cases) and tenants are much more discerning these days and are demanding well maintained properties.
A Garden Home will, on average, rent for around AED 425,000 per year. The majority of the villas available at this price are 10 years old and in the original condition. No upgrades, no new kitchen and bathrooms. You are basically paying for a great view and beach access.
Up until 2017 I would say that the Palm Jumeirah villas have been able to trade off the incredible view and beach access they provide. Potential tenants are constantly reminding us that the properties are in need of upgrading and therefore not representing good value for money and we have seen tenants moving out of the Palm Jumeirah villas to ‘inland’ locations that still offer private pools and amazing community amenities.
To retain these tenants the Landlords in both the apartments and villas are going to have to start thinking about refurbishing their properties. With no investment these landlords are going to feel that the market is worse than it actually is. Tenants are not just going to spend 450k and take on a property with problems.
By way of an example we were lucky this year to rent out a few extremely well maintained Signature villas. The average rental price for a standard Signature villa on the Palm is around AED 750k per year.
We rented 2 out for over AED 1.2m each! These properties were fully upgraded and the tenants paid in one cheque. The properties that are standing out are getting good premiums and also good tenants that want quality and can afford quality.
It does not really matter what the ticket price is you just have to be offering value for money.
4. The rest of world
The bigger economic picture is also influencing the prices and it has been well documented over the past few years but in short the following are affecting the Dubai economy and therefore property prices.
- Low oil prices
- Weak Russian currency
- Brexit ( weak pound)
- Local unrest ( Iran, Yemen, Saudi Arabia etc)
Of course there is a much more complicated reason than just these simple factors but for sure these ones are having an impact and if the oil prices started to settle above $70 per barrel I believe sentiment in the UAE would be greatly improved and we would start to see signs of improvement across all sectors of the economy.
To conclude I would say that the property market is under pressure right now and professional landlords need to react to the facts and not just bury their heads in the sand. Tenants have choices now and this is actually going to increase. Therefore the Landlords need to invest in their properties and ensure they are appealing to the tenant pool.
If you own property on the Palm Jumeirah you are blessed with one of the best locations anywhere. Don’t be fooled though into thinking that you have a right to a tenant who will meet your expectations as these tenants are savvy and are prepared to look elsewhere. Invest and upgrade your property and attract the best tenants through offering something they really want.
The Palm Jumeirah is the best place to live in Dubai but we need to offer the tenants a good product still.