In the coming months, a significant exodus of tenants from rental properties in Dubai is expected. This trend is being driven by various factors, including the slowdown in rental increases in some areas, potential rate hikes due to the updated Rera rental calculator, and an increase in new residential unit supply.
Despite the pressure from rising rents, new rental calculators and additional housing supply are expected to provide tenants with more choices and flexibility.
In recent years, Dubai's rental market has undergone significant changes. Over the past three months, the average rents for apartments and villas in Dubai have remained relatively unchanged, indicating a mixed growth trend in the market. It is anticipated that more tenants will move out of existing rental properties in the coming months, driven by factors such as the slowdown in rental increase trends in certain areas, potential rate hikes due to the updated Rera rental calculator, and the increase in new residential unit supply.
However, the high cost of relocation may prompt some tenants to reconsider moving. In the first quarter of 2024, rental renewals in Dubai saw a year-on-year increase of 12%, with many tenants accepting rental increases above the average level. This reflects tenants' desire to maintain good relations with landlords to avoid the risks, costs, and inconveniences associated with relocation. However, with the update of the Rera rental calculator, this trend may reverse. The updated calculator more accurately reflects market pricing, allowing landlords to significantly raise rents when market rates ease.
Analysts from real estate consultancy Asteco anticipate an increase in tenant mobility in the future, driven by factors such as the gradual slowdown in rental increase trends, the update of the Rera rental calculator, and the increase in new residential supply. With more residential units entering the market, tenants will have more choices and opportunities for relocation.
Data from Asteco shows varied rental growth rates over the past three months, with villa rents increasing by 6% and apartment rents by nearly 10%. However, the annual growth rate has dropped to single digits, reflecting changes in the market.
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Knight Frank, a global real estate consultancy, reported in its "Dubai Destination 2024" report that there are currently 261,243 housing units under construction or announced, expected to be delivered by the end of 2029. This means an average annual delivery of approximately 43,500 housing units over the next six years, significantly higher than historical completion levels. This will further alleviate the issue of supply shortage.
Usama Sukhera, Head of the Huspy Leasing Team, noted that with more projects underway and the handover of new communities, tenants will have more options and lower rents if they are willing to extend their commute by 30 minutes. He pointed out that this has prompted many tenants to negotiate with landlords before the end of their contracts, sometimes even exploring longer-term lease agreements, although these agreements are not legally binding, they can lock in rental prices in advance.
Jacob Bramley, Senior Leasing Manager at Betterhomes, pointed out that tenants must carefully consider whether they can continue to afford current housing costs or whether they need to move to smaller accommodations within the community or even outside preferred areas. The high cost of moving has led many tenants to decide to stay in their current residences to avoid inevitable relocation expenses.
The DLD rental index calculator controls rental increases, limiting landlords to increasing rents by only half of what the calculator calculates, providing some relief to tenants. However, since rents are determined by the free market, tenants have limited options in mitigating price increases. Tenants must balance yearly price increases with the associated costs of moving.
As property prices rise, buyers expect higher returns on investment (ROI), which also drives the trend of rising rents. The increase in the number of investors purchasing properties and subsequently renting them out to recoup their investment has also contributed to the increase in rents.
To cope with rising rents, tenants in Dubai are exploring flexible payment options, including paying rents through technology platforms to reduce the need for post-dated checks. Tenants are also seeking innovative ways to deal with constantly rising rents, including downsizing and moving to more affordable communities.
Sachin Kumar Singh, Managing Partner and Business Head at Foremen Fiefdom, stated that downsizing and exploring alternative communities with lower rents have become effective strategies to cope with rising rents. These measures enable Dubai tenants to better address the challenges of rising rents and obtain more favorable housing arrangements.
