Dubai: Tenants in Dubai hoping for a slowing down in rental rises in the second-half of 2023 are unlikely to get their wish. Leases – new and renewed – in the coming weeks will see landlords getting their higher asking rates, whether it’s a home on the Palm or a newly delivered one in a mid-tier residential community in Arjan.
The real estate consultancy CBRE found that by end May, average rents across Dubai grew by 24.2 per cent over a 12-month period. Other market sources say that even in those locations that had seen new properties delivered in the year-to-date, there has been not much of a slowing down on the rent increases. (Estimates suggest around 15,000-18,000 new homes were ready for occupation by end-users and tenants so far this year.)
“It might take another 50,000-60,000 homes to make a difference and slow down the rental increases,” said a market analyst. “These need to be delivered within the next 12 months itself to really slow things down.”
Will that happen? The consensus among industry sources is that an additional 25,000-30,000 homes will be ready by this year-end. And not enough to really slow down the rent hikes. Because demand is such as more newcomers take up residency in Dubai.
Affordable locations are catching up
By now, all established and emerging residential locations in Dubai have gone through double-digit rental – and property value – increases. Take Dubai South, for instance. The mega mixed-use destination had seen rent and property values hold steady in 2021, when Dubai’s established locations – the Marina, Downtown and the Palm – started to rev up.
It’s not the case any longer – but with some differences. “In Dubai South, rental rises (of 15 per cent) have been far outstripped by the gains in property values (26 per cent) in the 12 months to June,” said Altaf Abbas, Head of Research at the consultancy GCP.
“This is because the new apartments and villas have pulled in end-users, as did the older developments there.”
Rentals at ready-to-move in two-bedroom apartments in Dubai South are at Dh60,000-Dh65,000, based on listings in the leading property portals. Those at the Expo Village come in higher, at Dh80,000 plus
Renting still the best option?
The situation in another fast-emerging mid-market residential location – Arjan – shows another dynamic.
“Rents are going up more in Arjan even with all the new offplan project launches and recent handovers of completed homes,” said Abbas. “One would have thought this would dampen rent increases - but it hasn’t. The reason is because it costs more to mortgage a property in Arjan right now than it does to rent there.
“An offplan property is selling at Dh1,250 per square foot on average, while that for ready stock in Arjan is around Dh850.” (And there aren’t that many ready units available…)
Two-bedroom units in Arjan are currently listing for Dh70,000 and over on average.
Bring back rent-to-own schemes?
In the current market upturn, most developers in Dubai are yet to get serious about offering rent-to-own schemes for their tenants wanting to turn buyers. They may not have a reason to do so as their offplan launches are meeting heavy demand from investors, from here and overseas.
Many of these investors are betting big that rental demand – and rate hikes - in Dubai will continue to hold sway for more time to come. “I have an overseas investor wanting to buy bulk – about 20 ready apartments at or around Dh1 million each – and have them placed for rentals,” said a developer. “Every investor in Dubai real estate has an eye on the city adding to its population base.”
But if developers are serious wanting more end-users, offering rent-to-own schemes is the way to go, insist some market sources.
End-users too need be in developers' focus
“More residents in Dubai are convinced they need to buy a home for themselves here,” said an estate agent. “Higher property values and mortgage rates might be a deterrent, which is why they need to be offered payment options such as rent-to-own.
“Focussing on investors alone will not add depth to the market. As had happened in 2021 – when the current Dubai property market wave took off – the need is for more end-user buying.”
Whether on the Palm or Dubai South, or wherever they get a choice.
