Times have changed. The downturn has caused many to flee Abu Dhabi for reduced rents and improved amenities.
Rethinking the tale of two cities
After residing in Abu Dhabi for 12 months, Philip Smith is on the move. He is packing his belongings and preparing to leave the capital for a new life 150km down motorway E11. Once the 26-year-old Briton relocates to Jumeirah Lakes Towers (JLT) in Dubai, he will face the daily slog of a three-hour round trip to his place of work in Abu Dhabi. But as he racks up the kilometres and sees his weekly fuel bills multiply, he will console himself with the knowledge that the move is saving him almost Dh100,000 in annual rent.
Mr Smith, a workshop supervisor at Emirates Motor Company in the capital, is among the many people who have become fed up with paying Abu Dhabi's extortionate rents and dealing with its mounting traffic congestion and a desperate lack of parking. Those who previously put up with the expense or moved back to their home countries are now taking advantage of slashed rates in new housing developments such as Dubai Marina, JLT and Discovery Gardens on Dubai's south-western outskirts.
Mr Smith knew his stay in the capital couldn't continue when he discovered that the annual rent for his two-bedroom flat would go up 65 per cent. "The rental prices in Abu Dhabi are out of control," he said. "We paid Dh140,000 for a two-bedroom flat in the Tourist Club Area a year ago. There's no parking, so we have to park a 10-minute walk away and there are no facilities - no swimming pool, no gym. We found out that the apartment below us, which has exactly the same layout, was going for Dh230,000. If you convert that back to UK pounds it's getting on for £45,000 a year. I could have had a mortgage for over a million pounds on repayments of that."
Mr Smith said he briefly considered renting in Khalifa City, a 20 to 30 minute drive from downtown Abu Dhabi, but was put off after being quoted Dh350,000 for half of the top floor of a villa. He eventually chose a newly completed 2,500 sq ft, two-bedroom apartment in JLT, complete with pool, gym and underground parking, for Dh150,000, which he rented through Better Homes. He will move into his new home with his wife and daughter at the end of the month.
"JLT is a little bit of a building site at the moment, but if the apartment I've got had been available in Abu Dhabi there would have been a fight outside the door for it," he said. "And payment is in four cheques, unlike in Abu Dhabi, where you've got to stump up the whole lot in one go." And for Mr Smith, the savings in rent are not the only factor. "At the moment it takes over 50 minutes to get to work in the morning, and that's travelling 11km up Abu Dhabi," he said. "It's going to take an hour from Dubai, so although it's more miles on your car, from the time aspect there's almost no difference."
It is hard to draw positives from an economic catastrophe that has financially crippled so many people, but thanks to a slowdown in Dubai's population growth and the completion of thousands of new homes, the emirate's depressed rental market is now offering residents in both Dubai and Abu Dhabi the chance to save money or upgrade their level of residence. "I recently signed with two clients who chose new homes in Dubai because the prices in Abu Dhabi were no longer affordable for them," said Angelo Kazan, a leasing consultant at property broker Better Homes.
Hitendar Lala, also of Better Homes, added: "My clients chose a new home in the Gardens and prefer to commute daily to Abu Dhabi, as the logistics of living in Abu Dhabi, such as parking and access, were no longer practical for them." A British architect, who did not want to be named, said a combination of high rents and construction work around his four-bedroom apartment on Abu Dhabi's Salam Street encouraged him to move his family to the Palm Jumeirah in Dubai. He anticipates that he will actually shave time off his journey to work, even though he lives and works on Salam Street.
"I paid just over Dh200,000 a year ago, and for the same money in Dubai I can drive to work in less time and I've got an apartment in a desirable location with excellent facilities for my kids,' he said. About eight or nine months ago, before the economy took a downturn, his new apartment [on the Palm] would have rented for about Dh260,000 to Dh280,000. He also said he knows of two or three friends who are planning to soon make the move from Abu Dhabi to Dubai and commute daily.
Dubai has not always been such a financially attractive place to rent. For years the house market reflected the negative effects of breakneck economic growth, which severely dented consumers' attempts to save money. But it is now no longer dominated by rapacious landlords, single-cheque payments, cowboy estate agents and, most importantly, extortionate rents. Landlords may still attempt to raise rents beyond acceptable levels, but with the luxury of choice, tenants no longer have to give in to agents' "take it or leave it" attitude. For the first time this decade, tenants hold the position of strength. They can barter on prices and payment terms, knowing that landlords are desperate to earn rental revenue to cover mortgage repayments or service and maintenance fees.
Just compare the prices. In October, the annual rent for two-bedroom villas in The Springs and Arabian Ranches - both highly sought by expatriate families - was touching Dh200,000. A prospective tenant needed to earn close to Dh17,000 a month just to afford the rent and brokers' commission. Company housing allowances rarely stretched this far, putting the idyllic villa and garden lifestyle out of most people's reach.
However, times have changed, and estate agents this week listed dozens of homes in these developments at Dh135,000 to Dh180,000 a year. "Six months ago we had two-bedroom Springs villas at Dh180,000 to Dh190,000. You can now get one at Dh140,000," said Myles Bush, the director of PowerHouse Properties. Residents are jumping at the chance of a bargain. For those who were reluctant to move because of lack of choice and steep rates for newly agreed contracts (Dubai's rent cap only applied to renewed rents), the hassle of moving house is now worthwhile.
"I've wanted to move nearer my office (in internet City), but was put off by the rents at developments in that part of the city," said David Hammett, a Briton who has rented an apartment in Bur Dubai for almost three years. Mr Hammett, who wanted to avoid traffic on Sheikh Zayed Road, said the shift in prices has put two-bedroom apartments in Jumeirah Lakes Towers within his budget. He said he is seeking to share a two-bedroom apartment for about Dh115,000. After dividing the rent, he would pay a manageable Dh57,500 a year.
According to estate agents, any activity in today's property market is concentrated in the leasing market. With home loans so hard to secure, property buyers are thin on the ground. Those who move to the emirate will rent, not buy, they say. Rose-Marie Kilzi, the leasing director of Great Properties, a Dubai-based estate agent, said tenants who signed a lease when prices were at their highest last summer are already looking for better deals - three months before their contracts are due to expire.
Other estate agents said tenants who have time to run on their existing contracts are waiting for rents to drop further. Sniffing out bargain prices in a city that offers so many homes for rent is the new challenge for house-hunters. According to Peter Penhall, the chief executive of the property portal GoWealthy.com, newer areas of the city are attracting most interest. He highlighted Jumeirah Lake Towers and the middle market villa/town house complexes of Springs, Meadows and Lakes as popular areas among new tenants.
"Barsha is in high demand for the higher-rental payers who are looking for larger and more private accommodation," he said. However, Liz O'Connor, the director of residential sales and leasing at Better Homes, said the lower end of Dubai's rental market has shown the most activity this year. Non-freehold areas such as Qusais, Bur Dubai and Satwa have held their rental values, she said. "Many tenants are downsizing as a result of pay cuts or accommodation allowances being reduced or cancelled," she said.
"There also seem to be fewer families coming into Dubai. We are seeing a higher demand for studios and one- and two- bedroom units as opposed to three, four and five bedrooms." Andrew Delport, the chief operating officer at GoWealthy's property management division, added: "A need to downscale to more affordable accommodation is evident. "This will lead into potential tenants seeking lower rentals."
Looking ahead to trends for the rest of the year, Landmark Advisory, a division of Landmark Properties, says rents in Dubai will fall further still. Average apartment and villa rents in Dubai will decline by 23 and 25 per cent, respectively, this year, with low-quality units being hardest hit, the company forecasts. The sharp reduction of available financing in October 2008 pushed buyers into the leasing market, the report states, but by December job losses softened demand and rates began to fall.
With prices on the slide and plenty of homes available to rent, landlords are yielding to the demands of prospective tenants. In Dubai that translates into lower rent and more attractive payment terms. From demanding payment of a full year's rent in one or two cheques, which required tenants to borrow money or to put the contract in the hands of their employer, landlords are now accepting monthly payments.
"The biggest driver [of relocating] is the 12-cheques payment," said Mr Hammett. "It makes a huge difference." Camilla van der Merwe, the head of leasing at the property services firm Asteco, added: "Previously, the asking rate and the number of cheques was what (the landlord) got. But a lot (of rentable property) has been released and will be released in the next few months and tenants will have the room to negotiate."
Landlords are also considering offers for short-term leases, which are becoming more common amid uncertainty over job security. Enquiries into the availability of furnished homes and serviced apartments on three- to six-month contracts have shot up, with companies and individuals reluctant to commit to 12-month agreements and keen to avoid furnishing costs. "Tenants may well have to pay 10 to 15 per cent extra [for short-term leases], but if it means they're not locking their money away for 12 months then so be it," said Mr Bush, of PowerHouse Properties, which now receives up to seven enquiries a day about short-term rentals. Ms Kilzi, of Great Properties, said the company received just one inquiry in 50 for short-term leases until recently, typically from lawyers or bankers planning a limited stay. The frequency has increased dramatically in recent weeks, she said.
Cem Pozzam, the landlord of a one-bedroom furnished apartment in Discovery Gardens, said he had no choice but to offer his property for rent on a short-term basis. "It's more of a hassle because I'll have to find another tenant in six months, but it's better than leaving the place empty," he said. "I was offering it for Dh105,000 for the year, but didn't receive any interest." Landlords are typically reluctant to agree to short-term contracts, Ms van der Merwe, of Asteco, said.
"They're very hesitant, especially in the current market, to accept three- to six-month leases," she said. "They'll try to hang on until they get a 12-month, or at best, 24-month lease so they know that the property is occupied for the next two years while the market is changing." But while conditions in Dubai's rental market are increasingly favouring the tenant, those who are looking to work and live in Abu Dhabi say there is little change from last year's price inflation and desperate shortage of units. For them, the daily commute from Dubai is an option they will not consider.
Marie, a UK citizen who declined to reveal her last name, said she has been living in a hotel for seven months while searching for suitable accommodation. "My company has been looking for a place for me but they just can't find anything," she said. "I've looked here [the noticeboard at Spinneys Khalidiya] and on the internet, but there isn't much." Marie said the cost and availability of homes has not improved since she began looking seven months ago, and added that the estate agents she has dealt with still insist on a Dh100 fee for a property viewing and payment in one or two cheques.
A two-bedroom apartment she viewed recently in Hamdan Street was offered at Dh250,000, she said. "I've got friends who have a beautiful apartment in Dubai Marina and they're paying 140 [thousand dirhams a year], but it's too far to travel," she added. Walter Lacerta (CQ), a Filipino project manager, said he was looking for a one-bedroom flat to share with his family when they arrive in Abu Dhabi in a month's time.
So far the search has been fruitless, forcing him to stay with friends. "If you want to find somewhere you have to have good contacts and a lot of time," he said. "I was staying in Dubai for a long time and it's more expensive here. There's been no price decrease [since the economic crisis began] and the quality is bad." Julie Crosby, a leasing consultant at LLJ Properties in Abu Dhabi, said she knew of large six- to seven-bedroom villas renting for Dh280,000 in Dubai's Jumeirah area, the same price as a two-bedroom apartment in downtown Abu Dhabi.
"You put that same villa in Khalidiya and it would be Dh800,000," she said, adding that a one-bedroom apartment in the Marks & Spencer building was recently offered for Dh250,000. Rents in the capital experienced their biggest jump in early 2008, with hikes of up to 80 per cent from the year before, according to Landmark Advisory's 2009 Abu Dhabi Real Estate Report for the first quarter of the year.
But rents became simply too high for residents to afford, leading to a stabilisation in prices in the last three months of 2008, the company said. They have changed little since then and will remain relatively stable this year, said Jesse Downs, the head of research at Landmark Advisory. "A growing number of professionals have been leaving the city and choosing to commute from Dubai or Al Ain, where housing is cheaper and easier to find," she said. If you are new to the UAE and are looking for a place to rent, or are wanting to move to a new neighbourhood or area, it really is a tale of two cities. For those working in Abu Dhabi or Dubai, the other emirates are not as desirable: driving times are longer for most commuters and many of the available properties lack amenities and other services. If saving money is your main goal, Dubai seems to have your name on it.
Although many families are reluctant to leave the capital, the financial reasons for moving house are outweighing the hassle and expense. The thousands of new homes expected to be completed this year are likely to ease rents, but many cannot wait that long. "I'm sure when all these off-plan places in Abu Dhabi are finally built and opened up, then the rents will come down, but it won't happen for a while yet," said Mr Smith.
"I just wasn't willing to pay Abu Dhabi rental prices anymore so I started looking into Dubai. For me it was either go to Dubai or go home." firstname.lastname@example.org
? Always use a RERA-registered agency. Your leasing agent should be able to provide the company's RERA registration number, and you can verify the company on RERA's website, www.rpdubai.ae. ? Have your deposit money ready and take your chequebook or cash with you. The deposit is typically 5 per cent of the annual rent, although this can be higher for furnished properties. Landlords are more likely to negotiate if they know that a deposit can be taken immediately on agreement on terms. It's important to note that once a deposit is paid it is non-refundable until the end of the tenancy, so only put money down on the property you want to secure and make sure all the terms are agreed with the landlord and noted on your deposit receipt. ? Know where your rent is coming from and how long it is going to take to be issued. This is most applicable for companies that pay rent directly for their employees. Know your company's policy: how long it will take them and what they need to issue the rent cheques? Make sure your landlord is aware of the time delay, as the rent needs to be received before the tenancy contract start date. ? Determine what kind of parking space, if any, is available with your property. Dubai Municipality stipulates that one space must be available for studios, and one and two-bedroom apartments, with an additional space given for three bedrooms and above. Your landlord should give you sole use of the available parking. Also, be sure to check out the facilities available with your property; most apartment buildings have a gym and swimming pool, while others also offer squash courts and health clubs. ? Think about the area you want to live in. Is it close to work, what is the route to work, do you cross Salik, is the traffic bad in the rush hour, what shops are close by, does the area suit your lifestyle? All these factors will influence the enjoyment of your new home, and it's a good idea to explore a few areas to get a feel for the place before committing to a property.
? Take on a property without knowing who is responsible for major maintenance. The air-conditioning, electrics, plumbing, and structure all fall under the landlord's remit and the landlord should ideally have a maintenance contract in place with a company approved by the developer or be able to put you in touch with the developer's maintenance office. Minor maintenance, such as replacing cupboard handles that break during the tenancy, for example, is the responsibility of the tenant. ? Be afraid to negotiate. With rapidly falling rents due to empty properties and an increase in the number of cheques accepted as the norm, now is the time to get a good deal. It is in the landlord's interest to secure a tenant before rents fall further. ? Sign a tenancy contract without reading it in full. Additional clauses can be included for transparency; ask your agent what would happen if the property is sold during your tenancy, for example, and make sure that this is noted on the contract. ? Make cheques payable to anyone other than the registered agency or the landlord. Your agency should have the landlord's documents to prove that he or she owns the property. In some cases the agency will own the property, so the rent will also be payable to them. If you are unsure, ask for supporting documents and determine where your money is going. The 5 per cent commission fee will be payable to the agency, not the agent. ? Forget about DEWA and Etisalat / du accounts. To connect to services you may have to pay additional deposits (DEWA, for example, is Dh1,000 for an apartment and Dh2,000 for a villa) along with connection fees. Some developments, such as Jumeirah Beach Residence, also require an account with a district cooling company that provides the air-conditioning for your property, and another deposit is required for this. Your agent should provide information to point you in the right direction to get these accounts set up, and some companies will even do this on your behalf for an additional charge.