Economic dynamics both regionally and internationally over the past two-and-a-half decades have been reflected in microcosm by the rent levels of two modest apartment blocks in the bustling heart of Deira, Dubai, according to property services company Asteco, which celebrated its 25th anniversary today (Monday 8 March 2010).
In 1985 Al Muraqqabat apartments were one of Asteco’s earliest appointments as leasing and management agents. The company has since grown to become the largest private property management firm in the United Arab Emirates.
“The varying rent levels over the past 25 years have reflected the impact of fluctuations in the world economy, oil prices, wars and conflicts as well as the effects of more recent heated growth in the local economy,” said Elaine Jones, Chief Executive Officer of Asteco, who has been with the company since it was founded.
“We have been involved with many of the buildings that have shaped and defined Dubai and the UAE and the ups and downs of these property prices provide the documentary evidence that we are living in a global village,”
The apartments vary in size from studios to three-bedrooms and have been home for hundreds of families, couples and bachelors from all corners of the globe. In 1985 annual rents for studio apartments were AED 9,500, one bedroom apartments were AED11,000, two bedroom at AED17,000 and three bedroom apartments at AED25,000.
For the first ten years there was little, if any, change in the rents of the properties even though Dubai suffered economic hardship due to lack of trade during the Iran-Iraq war between 1980 and 1988.
In 1995 rents had increased with studio apartments costing an average of just over AED14,000 a year with the three bedrooms going for an average of under AED28,000. Today, 15 years later, the studios rent for an average of AED24,000 while the three bedroom apartments fetch an average of AED62,500.
Between 1995 and 1997, rents bounced up and down within a 5% to 10% range but 1998 marked the start of an international decline. It was brought about by the Asian financial crisis, declining oil prices – in January 1999 the price of a barrel fell to $17 – and the bursting of the dot.com bubble later in the same year.
By 2000, the rents of the studio apartments recorded their first decline over the previous year and averaged AED16,500. Similarly three bedroom apartment rentals fell to an average of AED34,000. Bigger falls were to come in 2001, however – the year of the 9/11 tragedy which impacted the world – with studio rents in particular falling on average to close to the same level of 1995. But while 2001 marked a low point, it was also the start of a regional economic upturn built on rapidly recovering oil prices.
“The factors driving the oil price escalation included the Iraq war, a weaker dollar and Asian growth,” said Jones. “Oil price increases were, as always in this region, a major driving factor in the local economy at the time with the barrel price rising to around $60 by 2005.
“The resurgent local economy with an abundance of new projects, companies, free zones, and mega-developments being announced virtually on a weekly basis again fuelled rent rises which rose in 2005 at a market rent of around AED17,000 for the studios and AED41,000 for the apartments.”
The next couple of years saw the gap narrowing between supply and demand in the Dubai housing sector which by 2007 led to the beginning of a dramatic change in rental trends. With the cost of living rising in Dubai combined with the first supply of properties coming up in New Dubai, continuing decline in rentals for three bedroom apartments was witnessed.
Conversely, market rents for the studios soared to previously unseen heights. By 2008 much of the world was in the grip of recession but the price of oil had just peaked at $147 and Dubai’s soaring growth continued. The market rent of the studios reached more than AED36,000 – almost AED17,500 more than the previous year.
“For many it was a question of a studio apartment being all they could afford at a time of high rents all round,” said Jones. “That combined with many expatriates sending their families home to save money by giving up larger apartments.
“The boom in studio apartment rents wasn’t to last for long, however. With supplies of studios and affordable apartments coming onstream from the New Dubai areas like Discovery Gardens, the Marina, and more specifically International City, the studios at Al Muraqqabat experienced an unprecedented fall in price.
“These factors combined with the impact of the global recession finally reaching the region, rapidly declining oil prices, the bursting of the Dubai property bubble and the fallout of the credit crisis, to bring the graph tumbling down. Today we are looking at an market rental for the studios at Al Muraqqabat of an affordable AED24,000.”
As Asteco marks its 25th anniversary, Jones added: “We have recorded and endured the changes over 25 years in the property market and hopefully will continue to do so for at least the next 25 – serving the market both in high times and down times.”