Dubai tenants consider ownership amid record rental surge

Emaar Properties

• Mortgage prices can be cheaper than monthly cost of leasing 
• Apartment rents in Downtown rise by 43 percent
• Villas see sharpest increase irrespective of location

Dubai tenants are considering a move into home ownership as residential rents surged by nearly 24 percent in the year to July, the highest annual rate of growth for more than eight years.

Double-digit price rises for apartments was widespread across the city but were supercharged in Palm Jumeirah, Downtown and Dubai Marina which saw rents increase by 39.8 percent, 38.4 percent and 35.7 percent respectively, according to CBRE.

But data from Knight Frank revealed that rents are still about 10 percent down on levels seen eight years ago for villas and nearly 28 percent cheaper for apartments.

• Dubai property market ranked among top 5 globally
• Etihad Rail on tack to deliver UAE property price rises

CBRE’s Dubai Residential Market Snapshot for August 2022 said that average apartment and villa rents stood at AED86,713 and AED260,949 per annum respectively last month.

The highest average annual apartment rents were found in Palm Jumeirah, where asking prices were AED219,769 while Al Barari was demanding the highest average villa rents at AED925,010.

Industry experts say rising rents are encouraging residents to buy property as mortgage prices are often cheaper than the monthly cost of leasing.

The UAE’s fiscal policy correlates with that of the US and so mortgage rates have climbed recently but they remain comparable to other prime international markets.

Tenants are also resigned to accepting some form of increase when they come to renew rental contracts.

Taimur Khan, head of research – MENA at CBRE in Dubai, told AGBI: “Tenants are more actively looking to renew leases and accepting some form of rental increase, particularly if they are keen to remain in neighbourhoods where we have seen marked increases in rents, where a new tenancy in the same neighbourhood is likely to mean a much more substantial increase. 

“However, as on average since last year rents have risen at a much faster rate than sales prices, there is a material portion who are actively looking to buy and in many cases becoming owner-occupiers.”

He said residential rents in Dubai increased by 23.7 percent in the year which represents the highest annual rate of growth since May 2014.

Dubai Land Department said it saw 123,856 rental deals signed during Q2 with 59.5 percent being new contracts while 40.5 percent were renewals.

Faisal Durrani, partner – head of Middle East research at Knight Frank, added: “Dubai’s rental market has shown the same level of resilience as the sales market.

“However, despite the seemingly steep increases, rents are still about 10 percent down on 2014 levels for villas and nearly 28 percent cheaper for apartments, over the same period.

“Rents have been rising rapidly, almost matching capital value gains, but the demand for rental property, especially at the top of the market, is what is supporting the strong increases we are recording.”

He added that the significant growth in rents has been greater than the increase in mortgage rates, which means it is cheaper for tenants to transition from renting to owning in Dubai.

Knight Frank says apartment rents in Downtown have grow by 43 percent in the last 12 months, while even relatively more affordable locations like Business Bay have posted increases of about 32 percent.

“Villas are, however, where the sharpest rent rises are taking place, almost irrespective of location,” Durrani added.

“Between last summer and today, rents at the Springs, for instance, have grown by 23 percent on average, while villas on the Palm Jumeirah now lease for 45 percent more than last year.”

The CBRE report also showed that the total volume of transactions in Dubai’s residential market reached 6,524 in July, up 58 percent from a year earlier as the city’s real estate market continued its upward surge. 

It noted that total transaction volumes in the year to date to July reached 45,793, the highest total recorded since 2009.

“Despite the summer period, which usually sees more subdued activity levels, sales activity in Dubai’s residential market remained buoyant in July,” Khan said.

“Notwithstanding this strong activity average price growth slowed, albeit it marginally to 9.9 percent, in the year to July.”

CBRE said that in the year to July average apartment prices increased by 8.7 percent and average villa prices by 17.8 percent. Average apartment prices in Dubai stood at AED1,114 per square foot and average villa prices stood at AED1,335 per square foot. 

Compared to the highs witnessed in late 2014, these rates per square foot are 25.1 percent and 7.6 percent below the peak for apartments and villas.

In the apartments segment of the market, Jumeirah recorded the highest average sales rate per square foot at AED2,082 while Palm Jumeirah recorded the highest rate for villas at AED 3,521.