A unique development in Dubai real estate industry is the emergence of a two-tiered rental market. An increasing discrepancy between renewal and new lease rents is the hallmark of this situation. Understanding the causes of this rental disparity becomes crucial when the city sees changes in tenant preferences, increased Dubai property ownership, and different dynamics between new and current renters.
Reasons For The Rental Gap You Should Know
● Tenant Transition To Ownership Of Real Estate
According to Prathyusha Gurrapu, Head of Research and Consulting at Cushman and Wakefield Core, a significant driver in the rental gap is the growing number of renters in Dubai moving on to become end-user occupiers and Dubai property owners.
The fact that rents are rising more quickly than sales prices is causing this change. The rental market changes when renters consider becoming property owners, resulting in different patterns for new and existing leases.
● New Lease Rents vs. Renewals
The Dubai Real Estate Regulatory Authority’s (RERA) rental calculator, which controls the maximum allowable rise in rent, is helpful to current renters who want to renew, according to Gurrapu. This management system ensures landlords can stay within the allotted amount while negotiating a renewal.
Consequences For The Dubai Rental Industry
● Dynamics Of The Two-Tiered Rental Market
Establishing a rental market with two tiers adds complexity to Dubai’s property sector dynamics. Rent hikes for current renters are predictable and stable by the RERA cap. There is a contradiction that influences the entire picture as new renters enter the market and must navigate shifting market rents.
● Expected Increases In Rent For New Leases
Gurrapu predicts that new leases will continue to rise in rental prices in 2024, particularly in well-known core places like Downtown and Business Bay. Rents in these locations should see increasing pressure due to high occupancy levels. She, however, points out that a more significant number of Dubai property deliveries may result in more modest rental rises in recently turned-over suburban regions.
Examining Data And Trends In Real Estate
● Making Use Of The Rental Valuation Certificate From RERA
Wakefield and Cushman According to core experts, several landlords are raising their rates above the RERA rental index using the RERA Rental Valuation Certificate. This strategy adds another level of complication to the rental market dynamics by enabling landlords to exceed the legally set restrictions.
● Gross Rental Yield For City-Wide Villas
On the other hand, the gross rental yield of villas throughout the city has decreased from 5.5 percent to 5.3 percent. This decline is because sales prices have risen more quickly than rental price hikes, which is indicative of the shifting dynamics within the market’s villa segment.
● Trends Of Rising Rentals
Gurrapu observes a deceleration in the rate of increase in residential rentals, notwithstanding their continuous rise.
● While rents increased by a more significant 27 percent in 2022, they increased by 19 percent in 2023.
● Forecasts for 2024 indicate a more moderate increase, with average estimates between 8 and 12 percent.
Suburban places should have comparatively slower rental growth rates, whereas central locations could witness more significant rises.
● Dynamics Of Supply And Demand
The number of units Delivered in 2023 exceeded 39,400, the largest since 2020, according to Cushman & Wakefield Core’s Dubai Annual Market Update.
● Of them, 17 percent were villas, and 83 percent were flats.
● In 2024, more than 65,000 units are scheduled for transfer.
● Analysts project a more realistic number of about 32,000 units, of which 24% would likely be villas and 76% would be flats.
Wrapping Up!
A two-tiered rental structure is emerging as a critical feature of the Dubai real estate industry’s subtle transition. The rental market will undoubtedly continue to change over the next few years due to various variables, including supply and demand, laws, and general economic conditions.
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