Dubai Budget -Friendly Neighbourhood Witness 20% Rent Increase On Renewal

Dubai is seeing a two-tiered rental market, with a widening gap between new contracts and lease renewals, a report has shown.

Rents have been consistently rising for the past three years and this trend continued in the first quarter of 2024. However, rental increases have slowed down for the past couple of quarters.

Karun Luthra, vice president for global operations at Foremen Fiefdom, said as landlords are increasing rents even in budget-friendly areas, tenants have to move to neighborhoods with lower rents.

In June, the volume of transactions in the emirate, the commercial and trading hub of the Middle East, rose to 9,876, an almost 19 percent annual increase.

Off-plan transactions grew by almost 45 percent, but the secondary market transactions softened marginally in June, according to CBRE data.

Dubai's upscale locations have already seen their share of double-digit rent increases in each of the last 3 years. Now, a lot of those kind of hikes are happening in mid-market areas. More so when it comes to rent renewals.

Strong Interest in Mid-Market Real Estate

The rising population of working-class individuals and expatriates in Dubai has led to a rise in the demand for affordable but comfortable accommodation in mid-tier neighborhoods. These places provide an opportunity to live comfortably without having to spend much on the necessities and other comforts and conveniences of life.

Mid-market residential locations such as Jumeirah Village Circle, Al Furjan, Arjan, Motor City, and even Dubai Sports City are seeing more of the full 20 percent rental hikes allowed on lease renewals under the revised RERA Rental Index.

Impact on Tenants and Landlords

For the Tenants

The rent rise comes with challenges for the tenants.

(1) Financial Difficulties

For middle-income earners and families, a 20% increase in rent is a huge burden that can affect the overall household expenditure.

(2) Relocation Decisions

To deal with the increasing costs, some of the tenants may wish to relocate to cheaper areas or negotiate new tenancy agreements.

(3) Long-Term Planning

Tenants may be forced to purchase a house in order to avoid the situation where they are forced to pay higher rent or make them look for an alternative means of housing.

For the Landlords

(1) Increased Revenue

A hike in rent leads to high rental revenue and thus increases the return on investment for property owners.

(2) Property Improvements

Property owners may incur maintenance and improvement expenses with the aim of attracting and retaining tenants in order to justify a rent increase.

Conclusion

With the 2040 Dubai Urban Master Plan, the city’s resident population is expected to increase to 5.8 million by 2040. That reflects an increase of more than 2.15 million residents in the next 17 years, the report said. These rises, attributed to demand and improved community facilities, are both a threat and a potential for tenants and landlords. Thus, it is crucial to remain knowledgeable and adaptive as the market shifts in order to effectively address the changing rental environment in Dubai.