Dubai rents increased by more than 27 per cent last year. At the same time the cost of buying a property also surged, with real estate records being broken in the emirate.
It leaves residents facing the age-old question about the Dubai real estate market – rent or buy?
Analysts at Espace Real Estate have issued a guide with four key considerations to keep in mind when planning a personal property plan in Dubai.
Rent or buy in Dubai?
Espace identifies four points to consider:
- Market knowledge
- Finance
- Expected duration in Dubai
- Lifestyle preferences
John Lyons, Managing Director of Espace Real Estate, said: “Dubai’s residential rents and transactions reached a record high in 2022, particularly in some of the core areas across Dubai which saw many moving to neighbourhoods they would’ve never considered a couple of years ago.
“Average apartment rents increased by 27 per cent, and average villa rents rose more than 24 per cent, which has led many to think about getting on the property ladder sooner than they might have anticipated.”
Understanding The Market
Understanding trends and costs impacting the real estate sector is crucial as demand for rental units has increased due to new residency and visa policies.
In addition, property prices and rents fluctuate based on the popularity of the location and proximity to leisure, entertainment, and commercial hubs.
Factors such as upfront costs, location, and the duration of the contract period play a vital role in a household’s decision-making process involved in buying or renting a home.
Costs such as a mortgage deposit, mortgage registration fee, Dubai Land Department (DLD) fee, real estate brokerage fee, bank mortgage arrangement fee, and property valuation fee can add up to as much as 31 to 32% of the property value.
When choosing to rent, tenants must incorporate a margin for appreciation or depreciation to factor in the possibility of rent hikes, as landlords and property owners could be entitled to increase annual rent by 5 to 20% in a rising market, in accordance with the DLD Rental Index, provided tenants receive a 90-day notice period.
Residents in Dubai looking at renting a property, in the long run, would inadvertently incur higher overhead costs, says Espace.
For example, tenants seeking to rent a three-bedroom villa in The Springs community with an annual rent of AED 180,000 would incur average overhead costs worth AED 919,100, including rent paid over five years, a security deposit, and real estate and DLD fees.
In this circumstance, residents are advised to buy rather than rent, which will result in higher cost savings. Buying the same three-bedroom villa in The Springs worth AED2.8m ($762,000) over a five-year period could generate approximately AED273,464 ($74,500) in savings.
Sample cost breakdown of renting v buying in Dubai
| Cost of buying over 5 years | AED | Cost of renting over 5 years | AED |
| Deposit (20%) | 560,000 | Deposit (5% one time fee) | 9,000 |
| Estimated Monthly Payments for 25 years at 4.69% | 12,693 | Real Estate fee (5% one time fee) | 9,000 |
| Monthly Installments over 5-year period | 761,580 | Rent over 5-year period | 900,000 |
| Interest Paid over 5-year period directly to the Bank | 488,116 | Ejari fee (AED 220 annually) | 1,100 |
| Capital paid over 5-year period (money saved) | 273,464 | Total cost of rent over 5-year period | 919,100 |
Financial Positioning
Buying or renting properties requires a substantial long-term commitment and is completely dependent on residents’ monetary backing or financial circumstances.
Homeownership in Dubai requires a minimum down payment of the principal price of a property.
Apartments, villas, or townhouses below the value of AED5m ($1.4m) requires a 20% down payment or a 30% down payment for properties above the same value.
Quick reaction time by residents in placing a down payment to secure units can ensure the principal price on their future homes does not increase, as demand from multiple buyers or renters can drive the price higher.
In the current climate, with an increase in international investors and given that rental prices are at an all-time high, Expace advises residents with substantial savings to invest by purchasing a property for the best return on investment (ROI).
Duration of Stay
One very essential question a tenant must ask themselves is the length of time they plan to live in the UAE.
From a financial standpoint, tenants residing in the UAE for two years or less are advised to rent rather than buy a property, as it enables them the freedom to live in different communities across the country, and offers the flexibility of limiting liabilities over a short period, empowering greater financial freedom.
Lifestyle Preferences
Location is everything, and residents should consider their non-negotiables when buying or renting a home in Dubai. These include either living closer to their children’s school or finding a home closer to their workplace for a shorter commute.
Easy access to transportation and commercial hubs in Dubai should also be factored into the decision-making process.
For example, properties closer to the Dubai Metro stations or in the proximity of shopping malls such as the Mall of the Emirates are more expensive to rent and buy in comparison to properties in Dubai Investment Park.
Residents seeking the freedom of living in their homes are advised to buy rather than rent, which might otherwise restrict tenants from renovating their homes based on the tenancy contracts.
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