Dubai tenants downsize and move to cheaper areas as rents rise

Annual increases of up to 25% are making it harder for tenants to renew their leases, says property consultancy Core

Apartments on Palm Jumeirah recorded the highest rent increase in the third quarter, according to real estate consultancy Core. AFP

At the height of the coronavirus-induced movement restrictions, a significant number of people in the UAE moved into bigger homes with gardens and outdoor amenities as rents dropped.

However, many are now opting to downsize or move to cheaper areas as residential rents increase across the Emirates.

Mechelle Manuel, 31, decided to move out of a two-bedroom apartment in Town Square, Dubai, after her property broker said her rent would rise by 15 per cent this year.

The traffic and content manager at a digital marketing communication agency in Dubai paid Dh40,000 in annual rent for two years and shared the unit with her two sisters.

“The rent increased by 15 per cent to Dh46,000. Although we tried negotiating with the broker, it was no help,” says Ms Manuel, who is from the Philippines.

“We were willing to accept the increase because of the hassle of moving to another place, but when the broker spoke rudely to us, we decided to move.”

Dubai’s property market rebound has picked up pace this year as the emirate’s economy continues to make a strong recovery from pandemic-driven headwinds.

The emirate’s economy grew by 6.2 per cent in 2021, according to preliminary data from the Dubai Statistics Centre. In the first three months of this year, Dubai’s gross domestic product expanded 5.9 per cent, according to government data.

Business activity in Dubai's non-oil private sector economy maintained a “robust” rate of expansion in September, although at a slower pace, as new orders rose sharply despite an increase in input costs.

The emirate's seasonally adjusted S&P Global purchasing managers' index reading stood at 56.2 in September. A softer rise in staffing and inventories pulled it back from the 38-month peak of 57.9 achieved in August.

There are steeper increases, compared with sales prices, in the rental market in Dubai, according to property consultancy Core.

Citywide villa rents are up by 28 per cent and apartments by 26 per cent annually. While improving at record pace, these rents are still below 2014 peak values, with villas lagging by 5 per cent and apartments by 24 per cent, the research showed.

However, at the current pace, city-wide villa rents are expected to reach the 2014 mark by the fourth quarter of 2022 or early next year, with apartment rents following the trend shortly after, Core said.

“As most districts have witnessed over 25 per cent increases, such a sharp rise in rents is not sustainable, thus significantly impacting affordability, and is a growing concern among tenants,” says Prathyusha Gurrapu, head of research and advisory services at property consultancy Core.

“With tenants choosing a rental property giving much consideration to connectivity to the workplace, school and community amenities, being [faced with] a nearly 25 per cent rental increase in a year makes it challenging to both renew or bear moving costs.

“As the rising cost of living is not at par with salary increases, coupled with ongoing rents considerably contracting disposable incomes, many tenants are pushed to either downsize, move to affordable areas and in many cases, buy as rental outflows are greater than mortgage payments.”

Ms Manuel decided to move to the city's outskirts for better value. She has been renting a three-bedroom townhouse in Damac Hills 2 for Dh40,000 since July. She shares the unit with her sisters and two friends.

The rooms in the townhouse are smaller and the community is located further out, she says. Her utility and air-conditioning bills have also doubled, compared with the Town Square apartment.

“I want to stay here for at least three years and hope the Real Estate Regulatory Agency (Rera) rent index protects us from sudden rent hikes,” she says.

“The community is good, with pedestrian pathways, a Carrefour supermarket, grocery outlet, tailor, gym and petrol pump. The only thing missing is food delivery.”

Apartments on Palm Jumeirah recorded the highest rent increase in the third quarter, at 38 per cent annually, followed by Downtown Dubai (37 per cent) and The Greens and The Views (both at 37 per cent), according to Core estimates.

Outer districts have also recorded a sharp rise in rent, compared with the third quarter of 2021, with Discovery Gardens clocking a 27 per cent increase, followed by Dubailand (25 per cent) and Dubai Sports City (21 per cent), the consultancy says.

The steepest increase in year-on-year villa rents were recorded in Emirates Hills (42 per cent) and Palm Jumeirah (41 per cent), followed by Jumeirah Village Circle (28 per cent) and the Springs and the Meadows (20 per cent).

Landlords who have been in a downward market for a long time and looking to capitalise on favouring market conditions are pushing to raise rents during renewals while many tenants are citing the Rera rental calculator to protect themselves, says Ms Gurrapu.

“We are witnessing many cases of 12-month eviction or refurbishment notices being served to tenants where landlords are trying to get the unit vacant and back on the market,” she says.

“We are seeing some landlords leverage the rental valuation certificate to increase rents during renewals. Until Rera officially announces that the rental valuation certificate supersedes the Rera rental index, the latter remains applicable for rental renewals. The rental valuation certificate applies to a vacant property and is not for a rent renewal.”

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Meanwhile, Fiona Johnston, 44, moved from a one-bedroom townhouse in Jumeirah Village Triangle, Dubai, after her landlord announced his intention to raise the rent to Dh100,000, from Dh90,000. She had lived there for five years.

The South African marketing manager with a property consultancy moved with her family to a two-bedroom apartment in Remraam at the end of September and pays Dh65,000 in rent annually.

“We are currently looking to buy two properties in Cape Town for retirement purposes. That is the main reason we moved,” she says.

“By moving to the apartment, we will not only be saving on rent, but also on Dewa bills and garden boys, among other reasons.”

Ms Johnston says she does not miss anything about villa living.

“There are no swimming pools in JVT, which was another issue for us, and the community facilities in Remraam are excellent,” she says.

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Dubai’s recent population growth continued to put pressure on rental inventory and there have been rapid price increases in the most popular areas, with occupancy across the emirate at a five-year high, according to a third-quarter market report from real estate company Betterhomes.

The report was based on figures released by the Dubai Land Department.

The government’s initiative to attract global talent — through new visa reforms and the move to align the working week with the rest of the world — is further cementing Dubai's status as an international hub and a leading gateway city to live, work and play, and underpinning residential property demand, the Core report says.

The UAE government’s agile response to the Covid-19 pandemic, the successful Expo 2020 Dubai and a series of social and economic reforms that were set in motion over the past few years are bearing results.

This is evidenced by the influx of foreign direct investment and high-net-worth individuals, record transaction volumes and sustained population growth across income segments, the consultancy says.

Dubai is drawing a considerable influx of HNI wealth, with the sharp rise in high ticket price transactions highlighting this, Ms Gurrapu says.

This year, Dubai recorded the highest number of sale transactions above Dh100 million ($27.2m) — at 16, compared with five in 2021.

There was a sharp increase in the third quarter, with 10 transactions above the Dh100m mark registered, she says. Ultra-prime waterfront projects such as Palm Jumeirah villas led this trend.

“Overall transience in the rental market has dropped significantly as tenants look to stay put and renew, rather than face today’s prices,” Betterhomes says.

Paying annual rent with one cheque is also becoming more common in Dubai. One-cheque payments rose by 8 per cent, compared with last year, Better Homes says.

More tenants are deciding to stay in their current property, where there are rent controls in place, to avoid rising costs.

Paying with one cheque is the most popular way to secure rent for the year, making up 32 per cent of rental transactions in Dubai in the third quarter, according to Betterhomes.

The next most common was four cheques, which represented 30 per cent of rentals, followed by two cheques (22 per cent), three cheques (9 per cent), five cheques (5 per cent) and 12 cheques (1 per cent), the company says.