Are you finding it hard to afford rent in Dubai? You’re now not alone in this case. Many tenants in the course of the city were hit massive rents of as much as 15% since the Real Estate Regulatory Authority (RERA) updated its Rental Index at the start of this year. This change has left citizens facing higher costs, whether renewing their present-day contracts or signing new leases.
Dubai Rents Rise By Up To 15% After Rental Index Update
The rental index update was introduced earlier this year, reflecting the ongoing growth in demand for properties across Dubai. The update led to rent increases ranging from 8% to 15% in most districts. This surge has made the city’s rental market more challenging for tenants, especially those looking for new leases. With the updated index, more tenants have chosen to renew their existing contracts rather than face even higher rents in new properties. Renewals have become more common as the gap between renewing and taking up new leases continues to widen.
Rent Increases Across Different Property Categories
The latest figures show a sharp rise in rents across all property categories, whether apartments or villas. Compared to the pre-pandemic period, rents are now 64% higher than in the first quarter of 2020. For instance, during the second quarter of 2024, rents saw a year-on-year increase of 19%. This consistent upward trend has been present for the last 14 quarters, showing how the market continues to tighten.
For villas, the increases have varied based on affordability. Rents in the affordable villa category jumped by 21%, while mainstream villas saw a 12% rise. Prime villas, typically found in the city’s most luxurious neighborhoods, experienced a more modest increase of 1%. Meanwhile, apartment rents also surged across all categories, with the affordable segment seeing a 27% hike, mainstream apartments rising by 19%, and prime apartment rents going up by 14%.
Signs Of Stabilization In Villa Rentals
Although villa rents have been on the rise, there are signs that the market might be stabilizing. City-wide villa rents increased by 13% year-on-year, which is slower than the growth seen in previous years. The surge in apartment rents, on the other hand, remains strong, with a 22% increase compared to last year. More tenants are opting to renew their contracts, with renewals growing by 14% during the second quarter of 2024.
This is especially true in mid-market apartment districts, where rents have risen the most, while prime districts are seeing smaller increases.
Differences Between Market Segments
The rental market’s performance varies greatly depending on the type of property and location. Affordable and mid-market districts, which previously had lower rent levels, are now catching up and seeing steep increases. These districts had been slower to recover, but the recent surge in demand has led to higher rental growth. In contrast, prime districts that experienced sharp increases earlier in the market cycle in 2022 and 2023 are now seeing more stability.
The overall rental market continues to favor landlords, with rents growing across the board, although the pace of growth has slowed compared to last year. As rents continue to rise, many residents are feeling the financial strain. Household incomes are not keeping up with the higher rents, leaving less disposable income for other expenses. This trend is expected to continue, as the cost of living in Dubai becomes more challenging for middle-income residents. The situation is particularly tough for those in the affordable rental segments, where increases have been the sharpest.
Areas With The Largest Rental Increases
Certain districts have seen more pronounced rental growth than others. For example, villa rents in Jumeirah Village Circle saw the highest year-on-year increase at 40%, followed by Jumeirah Park at 22%, and The Springs and The Meadows at 14%. For apartments, affordable districts experienced the most significant jumps, with rents in Discovery Gardens increasing by 32%, Dubai Sports City by 28%, and Dubailand by 24%. These areas, known for offering more budget-friendly options, are now becoming more expensive as demand grows.
Despite the overall rise in rents, there are indications that some areas are stabilizing. For instance, a notable percentage of rental listings in 2024 did not see any price change compared to the previous year. Nearly 21% of listings had price reductions in the first half of 2024, compared to 17% in the same period in 2023. This suggests that while demand remains strong, the market is reaching a point where further price hikes may slow down.
In addition to rental increases, sales prices across Dubai have also continued their upward trend. Sales prices have risen for 16 consecutive quarters, marking a 21% year-on-year increase. However, the pace of growth varies by district.
Differences Between Primary And Secondary Sales Markets
An interesting trend has emerged in the sales market, where primary off-plan prices are higher than secondary off-plan prices in most districts. The difference remains in single digits, but it points to challenges for sellers trying to match original prices. As more off-plan supply enters the market in the coming quarters, this trend could become more pronounced. Sellers might need to adjust their prices to exit their investments, especially if new supply continues to grow.
Arshad Darbar’s Thoughts
Arshad Darbar, a seasoned real estate expert with extensive experience in Dubai’s property market, shared his perspective on the recent rental increases. According to Darbar, the current rise in rents reflects both the strong demand for properties in Dubai and the city’s sustained appeal as a global business hub. He highlights that while the rental surge is expected given the market dynamics, it places added pressure on tenants, particularly those in mid-market and affordable segments.
Darbar points out that many tenants are choosing to renew their contracts rather than move, as renewing is generally more cost-effective than securing a new lease. This trend, he says, is evident as renewals have surged across the market. However, he cautions that the continuous rise in rents, coupled with stagnant income growth, is making it increasingly difficult for residents to maintain their living standards.
Darbar believes that while the market remains favorable for landlords, a more balanced approach will be needed in the future to sustain growth while ensuring that residents can afford to stay in the city long-term.
Conclusion
Dubai’s rental market is in a period of significant change. The recent update to the Rental Index has triggered rent increases of up to 15% in many areas, making it increasingly difficult for residents to keep up with the rising costs. With rents now 64% higher than pre-pandemic levels and the market heavily favoring landlords, tenants face tough choices. The market shows some signs of stabilization, especially in villa rentals, but overall, rents continue to rise, especially in affordable and mid-market districts.
As household incomes struggle to keep pace, residents are feeling the pinch. The coming months will be crucial in determining whether this trend continues or if the market will stabilize further.
