Dubai is seeing a two-tiered rental market, with a widening gap between new contracts and lease renewals, a report has shown.
Many tenants are opting to stay put because rental increases during renewals are much lower compared to signing new leases – and they are regulated by the Real Estate Regulatory Agency’s rental calculator – property consultancy Cushman & Wakefield said in its latest market report.
Although residential rents continue to rise in Dubai, the pace is slowing down, the research found.
City-wide rents surged 19 percent year-on-year in 2023, compared with 27 percent the previous year.
Prathyusha Gurrapu, head of research and consultancy at Cushman & Wakefield, said increases have caused a significant upheaval in the rental market over the last few years, with most tenants receiving rental escalation notices.
“Villa rents have risen 16 percent year-on-year and are up by more than 17 percent from their 2014 peak values, while apartments have seen a sharper increase at 19 percent year-on-year – albeit apartment rents are 2 percent below their 2014 peak values,” she said.
“We expect rental rises to continue for new leases in 2024, particularly in established central locations, where high occupancy levels will exert upward pressure on rent.
"That said, with a greater number of deliveries in the sub-urban locations, we expect rental increases to be moderate in the newly handed over districts.”
The UAE property market continues to rebound strongly on the back of government initiatives and overall growth in the economy amid a non-oil sector boom.
Dubai and Abu Dhabi recorded strong property sales last year and market prices are expected to continue to rise in 2024.
Apartment rents in Dubai increased between 20 percent and 30 percent in 2023, according to data compiled by Better Homes.
While average villa rents also increased in communities across Dubai, these rises were typically in the range of 10 percent to 20 percent, the real estate agency reported last month.
Affordable apartment districts, including Discovery Gardens, Dubailand, Dubai Sports City and Jumeirah Village Circle, saw the sharpest rental increases in the past 12 months due to relatively lower bases, the Cushman & Wakefield report showed.
The sharpest rise in year-on-year villa rents was seen in Jumeirah Village Circle, followed by The Springs The Meadows, and Emirates Hills.
Some landlords are utilising the Rera rental valuation certificate to increase rents, rather than the regulator's rental index, the report found.
The certificate service can be accessed through the Dubai Land Department’s official website or through the Dubai Rest app.
To receive a rental valuation certificate, landlords must provide details and photos of the specific property and make a payment of Dh2,000 per unit.
The DLD will then issue the rental valuation certificate, reflecting the property’s current market value.
More people in Dubai are opting to buy their own homes, as rents continue to experience sharper increases compared to sales prices, Ms Gurrapu said.
More than 39,400 units were handed over to owners in Dubai, in 2023. This is the highest number of handovers reported since 2020, the report found.
Apartments comprised more than 83 percent of all 2023 deliveries, while villas accounted for the remaining 17 percent.
“The low levels of new villa handovers are expected to continue applying upward pressure on villa sales prices and rents,” Ms Gurrapu said.
Looking at delivery by districts, more than 5,556 units were handed over at Meydan One in Mohammed Bin Rashid district, the highest number in a district last year, the research indicated.
Major apartment deliveries were in Aykon City in Business Bay, The Address Residences Dubai Opera in Downtown Dubai and Surf at Creek Beach at Dubai Creek Harbour.
Notable villa projects handed over last year include Elan in Tilal Al Ghaf, Cherrywoods in Dubailand, and Joy Townhouses in Arabian Ranches 3, according to the consultancy.
Emaar accounted for 26 percent of all handovers in 2023, while Azizi at 15 percent overtook Damac at 8 percent, which had been the second-largest developer by handovers in recent years.
“In 2024, while there are more than 65,000 units slated for handover, our conservative estimates are at around 32,000 units, of which 76 percent are expected to be apartments and 24 percent villas,” Ms Gurrapu said.
“Nearly 12 percent of these handovers are expected in Meydan One, followed by Business Bay [10 percent] and Downtown Dubai [6 percent].”
Dubai is continuing to witness strong population growth, with an addition of 100,240 residents in 2023.
The city currently has more than 3.65 million residents, as per the Dubai Statistics Centre.
With the 2040 Dubai Urban Master Plan, the city’s resident population is expected to increase to 5.8 million by 2040. That reflects an increase of more than 2.15 million residents in the next 17 years, the report said.
“With an approximate household size of 4.2, Dubai would need nearly 30,000 residential units consistently every year until 2040 to cater to this growing population,” Ms Gurrapu explained.
City-wide villa sales prices increased 22 percent annually and are up by more than 16 percent from their 2014 peak values, while apartments are closely following with a 20 percent annual increase and just more than 6 percent below their 2014 peak values, according to Cushman & Wakefield data.
To put the steep increases into perspective, apartment sales prices have increased by 32 percent and villa sales prices have risen by 68 percent since the pandemic, the report showed.
"Although we don’t think the market will experience sharp levels of price increases as seen in 2023, we think there will be moderation in the market as the difference between ask and bid prices widens, pricing end-users out of the market," Ms Gurrapu said.
"With very limited post-handover payment plans now seen in the off-plan market, and the potential lowering of the interest rates later in 2024, these are expected to support the secondary sales market and help moderate the sales price increases."