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Tenants emerge winners in Sharjah as rents stabilise

SHARJAH, May 10, 2015

The stability in rents across the residential property market in Sharjah, UAE, has moved tenants firmly into the driving seat, with many now using the weaker demand as an opportunity to negotiate for little or no increase in rents at renewal, said a report.

This has resulted in rental costs remaining unchanged during the first quarter following a 23.9 per cent increase in 2014, stated the report by leading international real estate consultancy Cluttons.

In the fourth quarter of 2014, the rental growth slipped to just 0.5 per cent, while in the first quarter of 2015, little or no growth in rents was recorded, said Cluttons in its Spring 2015 Sharjah Property Market Outlook report.  

Tenants who have been negotiating at renewal have found that the majority of landlords are increasingly nervous about void periods and are leaving rents unchanged. This follows an overall growth in rents of 23.9 per cent over the course of 2014.

Steve Morgan, the chief executive of Cluttons Middle East said: "There has also been a recent trickle of vacant units being returned to the market; something that has not been seen for a number of years. This is being driven by tenants being lured to Dubai once more as rents steady south of the border, as well as those moving further afield to Ajman, which is perceived to offer better value for money; particularly recently completed buildings."

Furthermore, with a growing awareness amongst tenants of their right not to have a rental uplift for three years under Sharjah Municipality rules, landlords are not willing to risk a loss of income by getting tied up in litigation on any irregular rent rises, he noted.

"While the Municipality’s system appears to be working for now, Sharjah may benefit from an official rent index, which would give the market a greater sense of freedom and would also encourage other investors to step in to the buy-to-let market. This would remove the constraint of income levels being effectively frozen for three years under current rules," stated Morgan.

International research and business development manager at Cluttons, Faisal Durrani said: “While an official rent index would be welcomed by tenants, with widespread stability in rents taking hold, tenants are emerging as clear winners in the current residential market."

"The availability of alternative, competitively priced housing options not only in Sharjah, but Dubai and Ajman as well, means it is unlikely that we will see any strong turn around in the rate of rental growth in the short term, especially as the market’s performance is very much hinged on how the surrounding emirates’ real estate markets behave," noted Durrani.

According to Cluttons, Sharjah still has a handful of premium renters who are willing to pay higher rents to secure properties with perceived high quality finishing, views and facilities.

In the Qasba Canal area for instance, a three-bedroom apartment is being let for between Dh110,000-115,000 ($29,939 to $31,300) per annum, considerably higher than the current three-bedroom average of Dh75,750 ($20,617) per annum across the rest of the city.

Cluttons pointed out that the investment activity remained robust with Sharjah’s real estate market remaining a safe haven for refugee capital.

At Tilal City for instance, where 1,800 mixed use plots went on sale at the end of last year, almost 70 per cent of the plots in zones A and C have already been sold to investors, it stated.

And while just under 50 per cent of the buyers have been Emirati, Syrian buyers accounted for nearly 16 per cent of total sales. The next biggest group of buyers were Pakistanis (8 per cent), Palestinians (5 per cent) and Kuwaities (5 per cent); a very different make up to the transaction league table in neighbouring Dubai.

Durrani said: "For some time now the market has experienced a steady stream of ‘refugee’ capital flowing into Sharjah. This is primarily because the city’s appeal to regional investors goes deeper than attractive pricing."

"Its strong cultural identity and ties to Islamic heritage and tradition have proved invaluable in allowing it to emerge almost unchallenged in the region as a more easily accessible market when compared to Abu Dhabi or Dubai as it is perceived to offer better value for money," he explained.

On the commeercial sector, Cluttons said the rental yields in the emirate’s industrial sector continues to perform well, with growth being supported by strong underlying demand. Interest and activity levels are also being driven up by infrastructure improvements across the city as well as the rezoning of Industrial Area 1 to commercial space.

"The industrial market is one of the stand out performers in Sharjah’s economy and the city continues to cement its position as the UAE’s manufacturing hub," observed Durrani.

"This strong growth has been reflected in the shortage of supply and the subsequent upward push on rents. With a rapidly diminishing amount of land available in the core industrial areas, this upward pressure on rents is likely to persist, with more peripheral estates also likely to benefit from spill over demand," he added.

Cluttons report indicates that Sharjah’s office market is performing in similar fashion to the residential market with rents stabilising during the first quarter of 2015, as the wider hydrocarbon industry scales back on take up activity, while oil prices level out.

"It is still too early to assess the impact of the low oil price environment on office rents in Sharjah given the rising importance of other segments of the economy such as SMEs, aviation and banking & finance, all of which are still active players in the market," stated Morgan.
 
"While the impact still remains somewhat unclear, we are monitoring the situation," he added.-TradeArabia News Service




Tags: Sharjah | rents | stability | tenants |

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