Monday August 3 2009

Residential rents in Ajman have dropped by 20 per cent in the first half of 2009, and may fall further as new supply enters market in the short term, according to a new report.
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"Overall residential lease rates have fallen by nearly 20 per cent with some units declining over 35 per cent. Lease rates are likely to experience further downward pressure as significant new supply enters the market in the short term. With supply already outstripping demand, tenants are likely to benefit from an increase in options while also being offered more favourable terms from landlords," Matthew Green, Head of Research and Consultancy, the UAE, for CB Richard Ellis Middle East, said in the first half report on Northern Emirates.

"Increasingly attractive incentives have become more common as landlords try to retain high occupancy rates in the face of deteriorating conditions."

Much of the mid- to low-income accommodation needs of the Dubai workforce has been satisfied by developments in Sharjah and the Northern Emirates. The "ripple effect" emanating from Dubai reached as far north as Ajman and Umm Al Quwain, notably when supply became tight and rents rose in Sharjah during 2007 and early 2008.

With considerable supply entering the market during the remainder of 2009 and increased options for residents, a further decline in lease rates is likely.

Residential rental rates have fallen across all types and market sectors in the Northern Emirates during first half. Year-on-year rents in the Northern Emirates have also dropped by an average of 20 per cent and now show close resemblance to rents prevailing in first half of 2007.

"Declining lease rates in Dubai will result in further relocation of tenants from the Northern Emirates, predominantly Sharjah and Ajman," said Green.

The freehold market in Ajman first emerged in 2004 with the launch of Al Naemiyah Towers. Apartments in phase one were offered at a rate of Dh1,680 square metres while phase two rates were Dh1,940 square metres. This was followed by Rashidiya Towers, which was offered at a rate of Dh2,368 square metres.

Ras Al Khaimah has benefited largely from its position as both an overflow market for Dubai and its attractiveness as second home location for local and international investors. The availability of lower price units helped the emirate attract value-conscious purchasers seeking opportunities outside the main markets of Dubai and Abu Dhabi. The emirate's naturally occurring characteristics, in the form of mountains and sea, provides some potential for further future development of the tourism and leisure markets.

Similarly to the other emirates, Ras Al Khaimah saw a huge price growth between 2007 and 2008. During this period prices rose from Dh6,100 sq m to Dh14,800 sq m, an increase of 143 per cent.

In the past two years, Emirates Road has been the focal point for the majority of projects launched in Ajman. The location offers easy road access to Dubai but with prices at a substantial discount. As a result, these units have proved extremely popular with cost-orientated investors and end-users alike.

In the freehold market, the impact of the new visa regulations on the property markets in Ajman and Ras Al Khaimah has not yet become clear. In Ajman, the value of most residential properties is below the minimum criteria of Dh1 million laid down by the federal government and it is feared that already declining market conditions for developers will worsen, at least in the short term.

"This could result in additional delays, cancellations and government intervention. Given the current direction of the market and the lack of investor appetite more issues of this nature are likely to arise," the report said.


Government support

In order to help protect investors and maintain confidence in the property market, the Ajman Government has implemented several important initiatives. These include the establishment of a regulatory body and a programme to take stakes in a number of key developments. Notably Ajman Real Estate Investment Department, which is owned by the Ajman Government, acquired a stake in the Marmooka City project at a cost of Dh800 million.

The Ajman Real Estate Regulatory Agency was established in 2008 following Emiri Decree (11/2008). It aims to regulate the activities of real estate development and establish a legal system for licensing buildings and investment projects throughout the emirate. Ajman has also issued the Ajman Trust Account Law, under which it is mandatory for all developers to deposit amounts received from buyers into escrow accounts until the completion of predetermined stages of construction.

Sheikh Saud bin Saqr Al Qasimi, Crown Prince and Deputy Ruler of Ras Al Khaimah, issued Emiri Decree No22 of 2008 pertaining to the creation of "guarantee accounts" for real estate development projects. Under the law, developers wishing to sell off-plan properties in the emirate of Ras Al Khaimah must apply to RAK Investment Authority (Rakia) to open escrow accounts wherein all the funds received from property owners/purchasers must be deposited.

Similar to the situation in Ajman, Rakeen, a subsidiary of the RAK Government, purchased the La Hoya Bay project, being developed by K
"Overall residential lease rates have fallen by nearly 20 per cent with some units declining over 35 per cent. Lease rates are likely to experience further downward pressure as significant new supply enters the market in the short term. With supply already outstripping demand, tenants are likely to benefit from an increase in options while also being offered more favourable terms from landlords," Matthew Green, Head of Research and Consultancy, the UAE, for CB Richard Ellis Middle East, said in the first half report on Northern Emirates.

"Increasingly attractive incentives have become more common as landlords try to retain high occupancy rates in the face of deteriorating conditions."

Much of the mid- to low-income accommodation needs of the Dubai workforce has been satisfied by developments in Sharjah and the Northern Emirates. The "ripple effect" emanating from Dubai reached as far north as Ajman and Umm Al Quwain, notably when supply became tight and rents rose in Sharjah during 2007 and early 2008.

With considerable supply entering the market during the remainder of 2009 and increased options for residents, a further decline in lease rates is likely.

Residential rental rates have fallen across all types and market sectors in the Northern Emirates during first half. Year-on-year rents in the Northern Emirates have also dropped by an average of 20 per cent and now show close resemblance to rents prevailing in first half of 2007.

"Declining lease rates in Dubai will result in further relocation of tenants from the Northern Emirates, predominantly Sharjah and Ajman," said Green.

The freehold market in Ajman first emerged in 2004 with the launch of Al Naemiyah Towers. Apartments in phase one were offered at a rate of Dh1,680 square metres while phase two rates were Dh1,940 square metres. This was followed by Rashidiya Towers, which was offered at a rate of Dh2,368 square metres.

Ras Al Khaimah has benefited largely from its position as both an overflow market for Dubai and its attractiveness as second home location for local and international investors. The availability of lower price units helped the emirate attract value-conscious purchasers seeking opportunities outside the main markets of Dubai and Abu Dhabi. The emirate's naturally occurring characteristics, in the form of mountains and sea, provides some potential for further future development of the tourism and leisure markets.

Similarly to the other emirates, Ras Al Khaimah saw a huge price growth between 2007 and 2008. During this period prices rose from Dh6,100 sq m to Dh14,800 sq m, an increase of 143 per cent.

In the past two years, Emirates Road has been the focal point for the majority of projects launched in Ajman. The location offers easy road access to Dubai but with prices at a substantial discount. As a result, these units have proved extremely popular with cost-orientated investors and end-users alike.

In the freehold market, the impact of the new visa regulations on the property markets in Ajman and Ras Al Khaimah has not yet become clear. In Ajman, the value of most residential properties is below the minimum criteria of Dh1 million laid down by the federal government and it is feared that already declining market conditions for developers will worsen, at least in the short term.

"This could result in additional delays, cancellations and government intervention. Given the current direction of the market and the lack of investor appetite more issues of this nature are likely to arise," the report said.


Government support

In order to help protect investors and maintain confidence in the property market, the Ajman Government has implemented several important initiatives. These include the establishment of a regulatory body and a programme to take stakes in a number of key developments. Notably Ajman Real Estate Investment Department, which is owned by the Ajman Government, acquired a stake in the Marmooka City project at a cost of Dh800 million.

The Ajman Real Estate Regulatory Agency was established in 2008 following Emiri Decree (11/2008). It aims to regulate the activities of real estate development and establish a legal system for licensing buildings and investment projects throughout the emirate. Ajman has also issued the Ajman Trust Account Law, under which it is mandatory for all developers to deposit amounts received from buyers into escrow accounts until the completion of predetermined stages of construction.

Sheikh Saud bin Saqr Al Qasimi, Crown Prince and Deputy Ruler of Ras Al Khaimah, issued Emiri Decree No22 of 2008 pertaining to the creation of "guarantee accounts" for real estate development projects. Under the law, developers wishing to sell off-plan properties in the emirate of Ras Al Khaimah must apply to RAK Investment Authority (Rakia) to open escrow accounts wherein all the funds received from property owners/purchasers must be deposited.

Similar to the situation in Ajman, Rakeen, a subsidiary of the RAK Government, purchased the La Hoya Bay project, being developed by Khoie Properties in the Al Marjan development.

Source: Arabian Business