Dubai: Why more tenants will move out from rented properties in the coming months

Rental rate growth has been mixed over the last three months and average apartment and villa rates have remained more or less unchanged

Published: Sun 26 May 2024, 1:25 PM

Last updated: Sun 26 May 2024, 4:25 PM

Dubai’s real estate market is expected to see a rise in tenants moving out of their rented properties in the coming months. This trend is driven by several factors, including the easing of rent hikes in certain areas, an updated Rera rental calculator allowing for potential rate increase, and an increased supply of new residential units.

However, some analysts and industry executives say that the high cost of moving could also prompt other tenants to reconsider relocating.

Rent renewals in Dubai saw a 12 per cent year-on-year increase in the first quarter of 2024, with numerous tenants consenting to above-average rental hikes.

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“This reflects tenants’ desire to uphold positive landlord relations and circumvent the risks, costs and inconveniences associated with relocating, potentially settling for similar properties at even higher rates. However, this trend may be reversed after the update of the Rera rental calculator. The revised calculator now provides a more accurate reflection of open-market pricing, enabling landlords to implement significant rent hikes at a time when market rates are finally starting to ease,” said Asteco analysts.

“Going forward, we anticipate a rise in tenant movement for several reasons – the gradual easing of upward rental movement; the updated Rera rental calculator allowing for potential increases in existing rates; and an increase in supply from additional units being delivered to the market, from the execution of notices served in 2023, and from existing tenants transitioning to home ownership,” the real estate consultancy said. This means tenants in Dubai will be in a much better position to relocate and take advantage of the improving market situation.

According to real estate consultancy Asteco, rental rate growth has been mixed over the last three months. Average apartment and villa rental rates have remained more or less unchanged, with growth varying across different communities. Annually, growth rates have slowed to single digits, with villas at 6 per cent and apartments at close to 10 per cent.

43,500 new homes a year

Global real estate consultancy Knight Frank revealed in its Destination Dubai 2024 report that 261,243 homes are currently under construction or have been announced and are due to be delivered by the end of 2029. This equates to an average of approximately 43,500 homes per year for the next six years – well above the historic level of completions of around 30,000 units. We expect the number of announced pipeline projects to continue increasing over 2024, decreasing the supply gap.

Usama Sukhera, leasing team leader at Huspy, said with more projects being launched and new communities being handed over further away from the city centre, tenants have more options available at lower rental prices if they’re willing to add 30 minutes to their commute. “That’s why there has been so much interest in new master communities in these areas. Tenants are actively negotiating contracts with their landlords ahead of expiry. In some situations, tenants are also exploring longer-term lease negotiations. While not enforceable legally, these do have the benefit of locking prices for the duration of the contract in advance,” added Sukhera.

Usama Sukhera

High cost of relocation

According to Jacob Bramley, senior leasing manager at Betterhomes, tenants have to seriously consider whether they can afford to stay in their current property or, move to a smaller one within the community or even relocate to a different area outside their preferred search location. Tenants are generally knowledgeable about the rental market, but the high cost of moving has led many to reconsider moving out. Ultimately (they) decide to stay in their current place to avoid inevitable moving expenses.

Jacob Bramley

“The DLD rental index calculator controls rent increases, providing relief to tenants by limiting owners to asking for only half of the increase as per the calculator. Apart from that, tenants have limited options to mitigate price hikes as they are dictated by the free market. Tenants must balance the yearly price increase with the expenses associated with moving to a new home,” he said.

Usama Sukhera said tenants entering new contracts also choose properties based on the Rera index guidelines for second-year renewal.

“Moving homes regularly can be a costly affair, so often it is more prudent to pay a reasonable increase, instead of high packing and transportation fees. Landlords also recognise that vacant properties impact their earnings and are therefore demonstrating flexibility in negotiations,” he added.

With the increase in property price, Usama Sukhera said, property buyers are expecting the return on investments (RoIs) to increase, resulting in an upward trend in rents. “The rise in home purchases by investors, and the subsequent leasing of properties to recover their investments has also played a role in this.”

Beating rising rents

To mitigate the impact of rent increases, tenants in Dubai are exploring flexible payment terms. “While fewer cheques could mean a lower monthly rent, tenants are also exploring payments through technology platforms, which eliminates the need for advance cheques,” he added.

Tenants have been looking to find innovative ways to beat rising rentals, which have jumped multiple times in the past three years as the population has grown substantially after the pandemic, absorbing most of the supply which was available during the coronavirus period.

To cope with rising rents, Sachin Kumar Singh, Business Head and Managing Partner at Foremen Fiefdom said that for those tenants who seek to remain within their current area, downsizing has proven to be a good option. Alternatively, some tenants are opting to relocate to more affordable communities, often maintaining a similar landlord-tenant dynamic.

Sachin Kumar Singh

“The current trend appears to be a combination of downsizing and exploring alternative communities with lower rents, as tenants prioritise affordability and long-term financial goals. By taking these measures, tenants in Dubai are better equipped to navigate the challenges posed by rising rental prices and secure favourable housing arrangements,” he added.