2024 marks a pivotal period for Dubai's real estate industry as it moves towards maturity and greater regulation. Government updates to procedures, strict enforcement of regulations, and unexpected weather events have profoundly impacted Dubai's residents and communities.
Despite facing numerous challenges, Dubai's real estate market has shown remarkable momentum with rental values increasing by 20% year-on-year, and property prices rising 10% above historical peaks. As part of our company, we witnessed a significant increase in sales lead traffic from the first to the second quarter alone, with leasing transactions totaling approximately 110 million dirhams.
The recently revised Rental Increase Calculator by the Dubai Real Estate Regulatory Agency (RERA) has already started to have an impact. The next obvious question is whether the surge in rents will continue. Over the past three years, despite rising rents, the RERA calculator has kept rents linked to "COVID-19 prices," allowing tenants to renew contracts well below market averages. This year's update to the calculator has drawn considerable attention, as tenants now face rental increases of up to 20%.
This change is a much-needed update for landlords in mid-market areas who have been unable to realize their real estate investment potential.
Will tenants encounter difficulties as a result? Some tenants may struggle to afford rents in certain areas initially, but over time, rents may stabilize by this time next year as existing contracts expire.
Another outcome of the rental calculator change is that tenants are starting to delve deeper into their residential choices, especially those who have been living in Dubai for five years or longer, seeking greater stability. This trend has led many tenants to consider the property market as mortgage payments often prove more cost-effective than paying higher rents in many situations.
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Those who continue to rent are expanding their search to include areas with significant development potential, albeit farther from the city center. For example, with plans announced to transform Al Maktoum International Airport into Dubai's primary aviation hub, southern Dubai has become a hotspot for rental activities.
We have also seen the emergence of multi-year contracts and more discussions regarding payment terms and the number of checks.
All these trends are also forcing tenants to better understand the specifics of lease agreements and learn how to better protect themselves from overzealous landlord behavior. In the past, landlords could evict tenants without notice, and there have even been cases in recent years where landlords have tried to illegally evict tenants to obtain higher rents. However, tenants are now more aware of their rights and legal protections.
Despite record-breaking rainfall in April affecting the UAE as a whole, the review of the first half of 2024 in Dubai would be incomplete. Although Dubai recovered swiftly from this disaster, existing and potential tenants remain concerned about community safety.
Tenants are now scrutinizing and evaluating properties more carefully to ensure they meet the highest quality and safety standards. Concerns about drainage issues are undoubtedly more prevalent now than ever before.
I believe several factors will continue to drive rental growth in the second half of the year. Dubai Land Department's collaboration with real estate portals to reduce fake listings will build more consumer trust. Political uncertainties in Europe and the United States will further underscore the UAE's status as a safe haven.
Supply is expected to increase over the next 12 months, but will this lower prices? I think not. As more people worldwide view Dubai as a long-term residence, we will see sustained growth in the rental market.
