Dubai rents: Tenants still find renewals are less costly than a new lease

Dubai: Tenants in Dubai are sticking to renewing their annual rental contracts where possible – even when landlords have been hitting them with successive rent hikes. And even if the increases landlords are demanding turn out to be higher by 10% and more.

Based on the feedback provided by leasing agencies and property portals, a majority of tenants still believe it will turn out to be less costly on their budgets if they renew rather than seek a new rented home elsewhere. All this even as more brand new apartments are being added to Dubai’s residential rental supply.

The reason to renew is simple enough – staying put will eventually turn out to be less costly for the tenant. Because rents in Dubai are still far from reaching a correction mode.

“Moving is expensive (for tenants) between (paying) agency fees, the movers, landlord deposits, and setup costs,” said Rashed Hareb, co-founder and CEO of Rentify, the proptech platform that offers rent now pay later options.

“(When moving) the savings often don’t justify the hassle. With the current demand in the market, landlords aren’t really negotiating much on new listings - so it’s not like people are finding major bargains.

“From what we’ve seen on our platform, almost 90% of tenants still choose to renew, even if the rent goes up a bit rather than go out and find a new place.” (In fact, in each of the last 3 years, renewals have prevailed over existing tenants preferring new leases.)

Heading into summer, the renewal trends give a clear indication of what’s in store in the second-half of the year when leases come up for their annual contract negotiations. The simple fact is that landlords still hold all the cards.

Nearly six months into Dubai launching its digital Rental Index, a lot has clearly not changed for tenants in the renew vs. shift to new place debate. Other estate agencies specializing in residential leases say that renewals outnumber new leases by a significant margin.

“New leases would make sense for existing tenants in a market where rents are cooling off,” said an estate agent who specializes in hubs such as JVC, Dubai Marina and Arjan. “You have all these new apartments coming into the rental market, but they carry a ‘rental premium’ because of the new Dubai Rental Index.”

The rental premium comes from the star rating benchmarking used by the Index to define the rental range for apartments in a building. Newly completed properties typically come with all the bells and whistles that allow for a higher base rental. And using which landlords can set their demands. 

Now, everyone talks about the tens of thousands of new properties that should be ready for occupation in the second-half of this year. “It’s only when landlords find signing up new tenants is taking longer can we say the market is in rental stability of even a correction,” said a leasing agent. “We don’t see this now, with four-five enquiries still on for every new rental unit.”

This is the reality that existing tenants deciding whether to renew or not is facing. As Hareb said, tenants can’t afford to ignore all the associated costs of moving. Plus, if the new home is further from the office or school, that’s another set of costs to bear. 

According to Hareb, the Index certainly has curbed aggressive price gouging by landlords. “Overall, the index seems to be creating a bit more balance in the market. And in some areas, it’s even helping curb aggressive rent inflation.

“We’ve also noticed that tenants are more aware now thanks to the new rental index. A lot of them are checking whether their renewal offer is within range, but even when it’s a bit higher, they’d rather stay put than deal with the uncertainty of moving.

“So, while people aren’t just accepting any increase, they’re still leaning toward renewal over relocation.”

Leasing industry sources it will take another six to eight months before the Dubai residential leasing market fully absorbs all the changes dictated by the current rental index, which updates changes in real-time rather than the most gradual approach taken under the previous index.

Until then, most tenants will find they are better off renewing. Their landlords, for one, will not mind this one bit…