Rents near record levels in Dubai as interest rates bite

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House price growth in Dubai fell to its slowest rate in 18 months in August, with experts saying that the rising cost of mortgages is starting to impact the market.

While the city’s real estate sector is hitting record highs, rising interest rates are putting the squeeze on some landlords.

As a result rents are continuing to rocket, with average prices increasing by 24.8 percent in the 12 months to August.

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“With mortgage rates – both promotional and post-promotional – increasing, we have seen average price growth slow to 8.8 percent in the year to August, down from 9.9 percent a month earlier,” Taimur Khan, head of research – MENA at CBRE in Dubai, said.

“Rents on the other hand are continuing to register near record growth.”

In the US and several European countries inflation is now hovering between eight to 10 percent. In the UAE the International Monetary Fund forecasts the rate to hit 3.7 percent in 2022 and 2.8 percent in 2023 although the GCC region has seen rates rise in recent months.

New research from real estate consultancy ValuStrat also highlighted the slowdown in price growth, saying its ValuStrat Price Index (VPI) witnessed the slowest monthly growth rate in 18 months.

It said the villa submarket continued to perform, albeit at a slower 1.3 percent month-on-month expansion, while apartments, which represent the majority of Dubai’s residential market, have “gradually approached possible price ceilings” with a modest 0.7 percent monthly rise.

In August the total volume of transactions in Dubai’s residential market was 9,257, an increase of 70.5 percent compared to the prior year. Over the same period, off-plan and secondary market sales rose by 68.5 percent and 72.4 percent respectively. 

In the year to date to August 2022 the total volume of transactions registered 55,108, the highest level recorded since 2009 over this period.

“August’s total volumes of transactions in Dubai’s residential market reached the fifth highest monthly total ever recorded,” Khan added.

“Transactional activity in the sector is continuing to defy both a challenging global economic backdrop and what is usually a more subdued period for transactional activity.”

Average apartment prices rose by 7.7 percent annually and average villa prices by 15.8 percent. Dubai’s average apartment prices reached AED1,120 per square foot and average villa prices reached AED 1,339 per square foot. These rates still sit below the peak of 2014, Khan noted.

In the year to August average apartment rents increased by 24.9 percent and average villa rents by 24.2 percent with the average annual apartment and villa rents reaching AED87,774 and AED263,034, respectively.

“The growth rate of rents, on a month-on-month basis, has slowed for three consecutive months now, indicating we may see the rental growth rate start to moderate in the not too distant future,” Khan said.

However, Ata Shobeiry, CEO at Zoom Property, a UAE-based real estate portal, said the upcoming FIFA World Cup will further boost the Dubai rental market later this year.

“Many real estate agencies and short-term rentals have reported advanced bookings for November and December,” he said.

“But the real impact of this upcoming mega football event will be evident in October, a month prior to the event.

“It will give the already-growing Dubai rental market a major boost.”

Shobeiry said apartments in the affordable category have witnessed an increase of 21 percent in rents, while the rental cost for luxury flats has gone up by up to 43 percent. He expects these numbers to increase further during the last quarter of the year.

He also said the World Cup tournament has led to an increase in demand for short-term rentals in Dubai. As a result, many landlords are switching from one-year rentals to short-term stays.