UAE Real Estate: Rental Properties increases across Dubai properties to slow down in 2024.

The study conducted by ValuStrat, a real estate valuation and advisory services company, suggests that tenants in Dubai can expect some relief in rental hikes in 2024. Despite the continued high demand for real estate in Dubai in 2023, the rental gains across properties in the emirate are expected to show signs of slowing down the following year.

According to the latest figures from the ValuStrat Price Index (VPI) for Dubai's residential market, the city recorded an 11.7% year-on-year (YoY) growth for the second quarter of the current year, reaching a total of 91 points. This indicates a significant increase in rental prices during that period.

However, the study predicts that the rental hikes will likely slowdown in 2024, providing some relief to tenants who have been facing increasing rental costs.

Rental Market

Rental Prices Surge: Rental prices for new residential contracts experienced a significant surge this year. There was an increase of 32.6% compared to the corresponding period last year, and a growth of 3.5% since the previous quarter.

Villas Led the Increase: Among various residential property types, villas recorded the highest increase in new rents. They achieved an annual increase of 52% and a quarterly increase of 3.7%. As a result, the average asking rent for villas reached 394,500 dirhams ($107,420) per annum.

Prime Villa Valuations and Rents Set New Records: In Q2 2023, prime villa valuations and rents reached new record levels, according to ValuStrat. The average valuation of villas surpassed the previous peak recorded in 2014 by 1.2%. Villa prices saw an annual increase of 15.8% and a quarterly increase of 4.3%, resulting in a total of 114.9 VPI points.

Oversupply in Dubai's Property Market: Haider Tuaima, Director & Head of Real Estate Research at ValuStrat, pointed out that Dubai's property market is generally oversupplied, especially in the apartment segment. Apartments represent over 85% of all residential units, and due to this oversupply, the apartment segment has not seen the same level of growth as the villa segment since the post-pandemic period.

Apartment Segment Capital Gains: Haider Tuaima mentioned that the vast majority of apartments did not experience significant capital gains in the last two years until the current surge. This is because investors have been turning to smaller, more affordable homes whose prices have not changed much since the market downturn during the pandemic in 2020. As a result, these smaller and more affordable homes are now attracting more attention from investors.

In summary, the rental gains in Dubai's residential property market have been significant, with villas leading the surge in rental prices and valuations. The apartment segment, on the other hand, has faced challenges due to oversupply, which has impacted its capital gains until recently. Investors are now shifting their focus to smaller, more affordable homes, given the increasing unaffordability of villas and townhouses.

Affordable Segments

This growth in the affordable sector is seen as a natural progression as other segments of the market might have already reached their price ceilings, leading buyers to seek better value and potential capital appreciation in more affordable areas.

The areas that saw significant quarterly gains include Motor City and Discovery Gardens, which recorded capital gains of nearly 5%. Other areas, such as The Greens and Dubai Production City, also experienced notable growth.

One of the driving factors behind this trend is the increasing number of tenants who are considering home ownership due to rising rents. As rental prices continue to rise, more tenants are likely to explore the option of buying their own homes as a way to stabilize their housing costs and potentially build equity.

Looking ahead, it's predicted that rental contracts will come into focus in 2024 as this trend of tenants moving into home ownership persists. While rental increases for new contracts are expected to continue in the current and next year, the rate of increase might slow down compared to the recent past.

Overall, the real estate market in Dubai has been on an upward trajectory, and the affordable sector is now becoming an attractive option for both buyers and tenants seeking better value and potential appreciation in their investments.