Will Dubai rental market slow-down after 2021 recovery?

Dubai rental market recovers well in 2021.

Experts have different predictions on the future.

• In 2021, Dubai’s rental market experienced the biggest growth since 2014.

• Villas and townhouses rental values increased by 26.8 percent During 2021.

• Apartments average rents increased by 14.3 percent during 2021.

• Dubai’s citywide residential net yields fell slightly to an average of 5.9 percent, with apartments at 6.2 percent and villas at 3.7 percent.

Dubai’s rental market is experiencing surging prices following a recovery from the Covid-19 pandemic. Now, landlords are able to charge higher rents than the previous two years, with some looking to replace low-paying tenants with higher-paying ones.

Experts are divided on what the future holds, however. With one suggesting that rents are likely to “be further bolstered.”

Last year saw property prices make their way upwards following a five year slump that was further exacerbated by the pandemic.

“Dubai’s residential rents declined an average of 40 percent since late 2015, bottoming out in 2020 on the back of the Covid-19 pandemic. Last year saw a fresh real estate cycle initiated by growth in capital values and record transaction sales volumes, the rental market followed suite with the 12 months of last year resulting a record increase of 18.9 percent,” said Haider Tuaima, head of Real Estate Research at ValuStrat.

“On a submarket level, demand for larger living space with an oversupply of smaller apartments, saw villa asking rents soaring 26.8 percent annually to reach 2018 levels, while apartment rents improved 14.3 percent just about recovering from 2020 lows,” he continued.

In alignment, Rachael Kennerley, associate director – head of property management, Dubai, Savills, said: “Generally, the market is strengthening and we are seeing the rental decreases that have occurred over the past five years beginning to reverse since 2021 with the Savills Index showing yearly prime rental value growth in Dubai of about 25 percent as of Dec 2021”.

With such a context, landlords are looking to regain the losses they’d incurred when the market was weak.

“While landlords are keen to increase rents, to off-set the reduced rents of recent years and the numerous rent-rebates agreed during the pandemic, Savills ensures that all rental increase are in line with the Dubai Land Department’s  Real Estate Regulatory Agency (RERA) rules,” said Kennerley.   

“As the RERA calculator limits the rental increases to some extent, tenants who have historically had lower-base rents often end up paying less than the market rent in a strong and rising market. We believe one implication of the strengthening rental market may be that landlords become more flexible with early termination of contracts for tenants who do not wish to continue – this could be beneficial for landlords to have their unit vacated and then rent it out at an increased rate, in line with the current market,” she continued.

Another impact of the current market is that “depending on location and demand, landlords are less likely willing to negotiate with potential tenants by offering incentives such as rent-free periods, chiller expense cover, and 12-cheque payments,” said Tuaima.

Those in the real estate industry have different opinions on whether property prices will remain this high in the coming few months.

“Whilst Expo 2020 has triggered a peak in short-term rental prices, we believe the increase to be sustainable over the longer term. Rents will likely be further bolstered by a return to population growth, which has already bounced back since the onset of the pandemic, and increased job security, giving tenants the confidence to commit to 12-month leases yet again,” said Kearney.

“The government’s handling of the pandemic, including the extensive vaccination programme, has made Dubai an attractive place to live and work and we expect these factors to help the market stabilise further,” she added.

Meanwhile Tuaima said: “Looking forward, the rental market this year is expected to continue to witness growth but not at the same pace as last year. However, apartments located around the 311 and 611 highway corridors may face continued pressure from pending supply in the next few years.”