Rental prices in Dubai are skyrocketing with established residential communities and premium waterfront locations registering up to 80 percent spike in annual rents in the first half of 2023, driving droves of residents to look for owning properties rather than remaining locked into a heated rental market, the latest market report revealed.
The average hike in rentals in Dubai during the January-June 2023 period is estimated at 22 percent – a multi-year high for the city.
The rising trend of tenants rushing to own properties, in turn, is expected to push up the average sales prices across the market by 10-15 percent by the end of the year.
“Annual rental prices for apartments went up by 24.3 percent, while that for villas and townhouses rose by 16.5 percent in H1, 2023 over the same year-ago period.
“But this does not tell the whole story, as rental increases in established residential communities and premium waterfront locations saw a hike of 40-80 percent, forcing many tenants to reevaluate their living arrangements,” the 2023 half-yearly market report by Allsopp & Allsopp said.
The report, based on conversations with landlords and tenants, said with no sign of rents coming down anytime soon, tenants are now taking control of their financial future and opting to make their money work for them on the property ladder.
Rent vs Mortgage: Dubai’s dilemma
Lewis Allsopp, CEO of Allsopp & Allsopp, Dubai’s leading real estate agency, said their firm recorded a 39 percent increase in new rental contracts, and a 68 percent increase in new rental tenant applications in the first six months of this year, compared to H1 2022.
More importantly, as much as 63 percent of new rental contracts required the annual rent to be paid up front, in 1-2 cheques – sometimes the equivalent of a down payment for a new home!
“As monthly rents overtake equivalent mortgage repayments, more tenants than ever are seeing the value in paying towards a property they own, and capital appreciation potential vs the prospect of remaining locked into a heated rental market,” Allsopp told Arabian Business.
“We will see a continued rise in first-time home buyers coming to market, escaping increasing rents and taking control of their household finances,” he said.
The Allsopp & Allsopp chief executive said it is unlikely that rental prices will decrease due to the current market demand and due to the fact that leases are typically signed on a yearly basis.
“With demand as it is, rents may continue to rise for 1-2 more contract cycles, before we see any flattening period,” he said.
Allsopp said all things considered, no tenant wants the proverbial gun held to their heads on rents, and once the monthly outlay outstrips possible mortgage payments, many are looking at the options for a home purchase.
Allsopps’ views found resonance among several tenants, with a senior corporate executive in Dubai confirming to Arabian Business that she has already begun looking at purchasing a home recently, after having rented for 15 years.
Dubai’s real estate market sees buyer surge
Allsopp said the rising trend of tenants turning to prospective home buyers is adding to the already high demand for properties in Dubai, impacting the deteriorating demand-supply situation in the market.
“Gone are the summers saying goodbye to families in droves, returning home never to be seen again. We now see people staying in Dubai for longer than ever, opting to call the city home.”
As a result, the city population – estimated at 3.6 million – is growing at two percent per year, on track to attract 100,000 new residents by the end of 2023.
“[As against this], with an estimated 25,000-30,000 new properties set to enter the market in 2023, we see an undersupply of ready, available homes for people to move into,” Allsopp said.
He said the firm’s teams saw exceptional activity across villa and townhouse sales in 2023, up by a whopping 70 percent over the previous six months.
Allsopp & Allsopp said in many months they accounted for up to 30 percent of all villa/townhouse sales transactions in Dubai within areas such as Arabian Ranches and Jumeirah Golf Estates.
The average sales prices of villas and townhouses, however, showed signs of stability, rising only 3.7 percent in the past six months to AED5.6 million.
Buyer nationalities were consistent in 2023, with British buyers (23 percent) remaining number one, followed by Indians (10 percent) in second place.
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