According to a new analysis by industry experts, tenants in Dubai wishing for an end to rental hikes can look forward to some relief in 2024.
Despite the sustained high demand for Dubai real estate in 2023, ValuStrat, a real estate valuation, and consultancy services company, has found that rental growth across properties in the emirate will start to slow down in 2019.
According to the most recent ValuStrat Price Index (VPI) data for the residential market in Dubai, the city saw the rise of 11.7% year over year (YoY) for the second quarter of this year, totaling 91 points.
Jumeirah Islands (20.8%), Emirates Hills (19.6%), Palm Jumeirah (17.9%), Dubai Hills Estate (17.3%), and Arabian Ranches (16.8%) were among the areas that experienced the greatest gains.
Rental gains
Rental rates for new residential leases have increased significantly this year, rising by 3.5% from the previous quarter and 32.6% from the same period last year.
According to VPI research, villas experienced the greatest growth in new rents, recording a significant yearly gain of 52% and a quarterly increase of 3.7%, achieving an average asking rent of 394,500 dirhams ($107,420) per year.
According to ValuStrat, prime villa valuations and rentals broke historical records in Q2 2023, with the average valuation of villas exceeding the previous peak recorded in 2014 by 1.2%. A total of 114.9 VPI points were achieved for villa prices due to an annual increase of 15.8% and a quarterly increase of 4.3%.
Speaking about the current market trends, Haider Tuaima, Director & Head of Real Estate Research at ValuStrat stated: “Dubai is generally oversupplied, particularly the apartment segment, which represents over 85% of all residential units; that’s the main reason why the apartment segment has not seen the same growth witnessed with villas since post-pandemic.
“In fact, the vast majority of apartments have not seen significant capital gains during the last two years, until now, that is. As villas and townhouses become more unaffordable, investors are now turning to smaller, more affordable homes whose prices have not changed much since the market through during the pandemic in 2020.”
Affordable segment
According to the statistics, the cheap part of the market also had clear increase for the first time since the epidemic, with locations like Motor City and Discovery Gardens seeing gains of around 5%.
“In an intriguing turn of events, the affordable segment of the market witnessed evident capital gains for the first time since the pandemic, lower priced and high-yield areas observed notable quarterly growth, such as Discovery Gardens (4.5%), Motor City (4.3%), The Greens (3.9%), and Dubai Production City (3.4%),” Tuaima said.
“The broadening of the 2.5-year Dubai real estate rally into the affordable residential sector is an expected development, as price ceilings are possibly reached elsewhere, and buyers seek out better value and the hope of capital appreciation to come. Tenants moving into home ownership in the face of increasing rents is another driver of buyer demand. Rising transaction volumes in lower-priced districts are now pushing their prices up.”
However, as more tenants consider home ownership in affordable communities in the face of rising rents, this could also bring rental contracts into focus in 2024.
“We expect rental increases for new contracts to continue this year as well as next year, albeit at a slower rate,” Tuaima said.