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Tenants in Dubai hoping for a slowdown in rental hikes can expect some relief in 2024, according to a new study by industry experts.
Findings by ValuStrat, a real estate valuation and advisory services company, has revealed that despite continued high demand for Dubai real estate in 2023, rental gains across properties in the emirate will show signs of slowing down next year.
Latest figures of the ValuStrat Price Index (VPI) for Dubai's residential market indicated the city recorded a 11.7% year-on-year (YoY) growth for the second quarter of this year, reaching a total of 91 points.
Neighbourhoods that saw the most gains included Jumeirah Islands (20.8%), Emirates Hills (19.6%), Palm Jumeirah (17.9%), Dubai Hills Estate (17.3%) and Arabian Ranches (16.8%).
Rental gains
Rental prices for new residential contracts experienced a surge this year, with 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 in new rents, recording a substantial annual increase of 52% and a quarterly increase of 3.7%, according to VPI findings, achieving an average asking rent of 394,500 dirhams ($107,420) per annum.
Prime villa valuations and rents set new records in Q2 2023, according to ValuStrat, with the average valuation of villas surpassing 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.
Speaking about the current market trends, Haider Tuaima, Director & Head of Real Estate Research at ValuStrat stated: “Dubai is generally oversupplied, particularly the apartment segment, which represents over 85% of all residential units; that’s the main reason why the apartment segment has not seen the same growth witnessed with villas since post-pandemic.
“In fact, the vast majority of apartments have not seen significant capital gains during the last two years, until now, that is. As villas and townhouses become more unaffordable, investors are now turning to smaller, more affordable homes whose prices have not changed much since the market through during the pandemic in 2020.”
Affordable segment
The affordable segment of the market also witnessed evident growth for the first time since the pandemic, according to the findings, with areas such as Motor City and Discovery Gardens recording gains of nearly 5%.
"In an intriguing turn of events, the affordable segment of the market witnessed evident capital gains for the first time since the pandemic, lower priced and high-yield areas observed notable quarterly growth, such as Discovery Gardens (4.5%), Motor City (4.3%), The Greens (3.9%), and Dubai Production City (3.4%)," Tuaima said.
“The broadening of the 2.5-year Dubai real estate rally into the affordable residential sector is an expected development, as price ceilings are possibly reached elsewhere, and buyers seek out better value and the hope of capital appreciation to come. Tenants moving into home ownership in the face of increasing rents is another driver of buyer demand. Rising transaction volumes in lower-priced districts are now pushing their prices up.”
However, as more tenants consider home ownership in affordable communities in the face of rising rents, this could also bring rental contracts into focus in 2024.
“We expect rental increases for new contracts to continue this year as well as next year, albeit at a slower rate,” Tuaima said.
(Reporting by Bindu Rai; editing by Brinda Darasha)
