Over the past three months, rental rate changes have varied, with average rates for apartments and villas showing minimal fluctuations.
Dubai’s real estate market anticipates a forthcoming increase in tenants vacating their rented properties. This shift stems from factors such as moderated rent escalations in specific locales, revisions to the Rera rental calculator permitting potential rate adjustments, and a surge in the availability of new residential units.
Yet, according to analysts and industry leaders, the substantial expenses associated with relocation may dissuade some tenants from pursuing a move.
In the first quarter of 2024, rent renewals in Dubai recorded a 12% year-on-year increase, with many tenants agreeing to rental increases higher than the average.
“This reflects tenants’ preference to maintain positive landlord relations and avoid the risks, costs, and inconveniences associated with relocation, possibly settling for similar properties at higher rates. However, this trend may reverse following the update of the Rera rental calculator, which now accurately reflects open-market pricing, allowing landlords to implement significant rent increases just as market rates begin to stabilize,” explained analysts from Asteco.
“In the future, we expect an increase in tenant mobility for several reasons: the gradual easing of rental increases, potential adjustments due to the updated Rera rental calculator, and an influx of supply from newly completed units, notices served in 2023, and tenants transitioning to homeownership,” stated the real estate consultancy. This shift will empower tenants in Dubai to consider relocation more favorably amid an improving market scenario.
According to Asteco, rental growth rates have been varied over the past three months, with average rates for apartments and villas showing marginal fluctuations across different communities. Annually, growth rates have slowed to single digits, with villas at 6% and apartments close to 10%.
“Destination Dubai 2024,” a report by global real estate consultancy Knight Frank, disclosed that 261,243 homes are currently under construction or announced, scheduled for completion by the end of 2029. This translates to an average of approximately 43,500 homes annually over the next six years, surpassing the historical completion rate of around 30,000 units. The pipeline of announced projects is expected to continue expanding in 2024, narrowing the supply gap.
Usama Sukhera, leasing team leader at Huspy, noted that with the launch of more projects and new communities farther from the city center, tenants now have greater options at lower rental prices, albeit with slightly longer commutes. “This explains the increased interest in new master communities in these areas. Tenants are actively renegotiating contracts before expiry and exploring longer-term lease agreements, which, while not legally binding, secure prices for the contract’s duration,” Sukhera added.
High cost of relocation
Jacob Bramley, senior leasing manager at Betterhomes, advises tenants to carefully assess their financial capability to remain in their current property or downsize within the community, or even relocate to another area outside their initial search preference. While tenants are well-informed about the rental market, the substantial costs associated with relocation have prompted many to reconsider moving. Consequently, they often opt to stay in their current residence to avoid the unavoidable expenses of moving.
“The DLD rental index calculator regulates rent hikes, limiting landlords to request only half of the increase stipulated by the calculator. Despite this control, tenants have few options to manage rising rents dictated by market forces. They must weigh annual increases against the costs of relocating,” he explained.
Usama Sukhera noted that tenants entering new leases often base their decisions on Rera index guidelines for second-year renewals.
“Frequent moving can be costly, so tenants often find it more practical to accept moderate rent increases rather than incur high moving expenses. Landlords understand that vacant properties impact their income and are therefore more flexible in negotiations,” he added.
With rising property prices, Usama Sukhera observed that property buyers anticipate higher returns on investments (ROIs), contributing to an upward trend in rents.
“The increase in investor purchases of properties and subsequent leasing to recoup investments has also influenced this trend,” he concluded.
Beating rising rents
To counteract rent increases in Dubai, tenants are exploring flexible payment arrangements. “Reducing the number of post-dated cheques can lead to lower monthly rents, while tenants are also considering digital payment platforms, which eliminate the need for upfront cheques,” he explained.
Facing escalating rents due to increased demand post-pandemic, tenants are seeking innovative solutions. Many have absorbed available housing supply during the pandemic.
To manage higher rents, Sachin Kumar Singh, Business Head and Managing Partner at Foremen Fiefdom, suggested downsizing for tenants wishing to remain in their current area. Others are choosing to relocate to more affordable communities while maintaining the same landlord-tenant relationship.
“Presently, there is a noticeable shift towards downsizing and exploring more cost-effective communities as tenants prioritize affordability and long-term financial objectives. These strategic adjustments empower Dubai’s tenants to effectively manage the impact of increasing rental costs and secure favorable housing solutions,” he elaborated.
