One-cheque payments increasingly common in Dubai rental market

More tenants are opting to renew their contracts instead of searching for new housing due to rising prices, according to Better Homes

Apartment rents in Dubai increased between 20 per cent and 30 per cent last year, according to Better Homes. Pawan Singh / The National

One-cheque payments are increasingly becoming the most popular choice among landlords in the Dubai rental market and accounted for 33 per cent of new tenancy agreements last year, a new report has said.

There was also a significant shift from four-cheque payments to two-cheque payments, suggestive of the competitive nature of the current rental market and landlords’ ability to negotiate favourable terms, according to property broker Better Homes.

“Rising prices have resulted in higher tenant retention rates, with occupants opting to renew their contracts instead of searching for new housing,” said Richard Waind, chief executive of Better Homes.

“A shortage of available properties in key communities across Dubai led to a continued increase in average rental prices in 2023.”

The UAE property market continues to rebound strongly on the back of government initiatives and overall growth in the economy amid booming non-oil sector expansion.

Dubai and Abu Dhabi recorded strong property sales last year and market prices are expected to continue to rise this year.

Apartment rents in Dubai increased between 20 per cent and 30 per cent, according to Better Homes’ data.

While price increases were relatively consistent across many popular communities, notable growth was reported in Dubai Creek Harbour, Palm Jumeirah, Jumeirah Golf Estates and Jumeirah Beach Residence, the agency said.

While average villa rents also increased in communities across Dubai, these rises were typically in the range of 10 per cent to 20 per cent.

But in several popular communities average rental prices increased by more than 20 per cent, including Jumeirah Golf Estates, Damac Hills, Arabian Ranches 2 and Emirates Living, Better Homes reported.

“The number of new properties handed over in 2023 was relatively unchanged from the previous year, failing to keep up with the speed at which Dubai’s population is expanding,” Mr Waind said.

“This supply-demand imbalance has put pressure on rents. We see more tenants opting for lease renewals, leading to a surge in tenant retention rates and record-breaking occupancy levels.”

There were 34,810 homes delivered in Dubai last year, a modest 1.5 per cent increase on the previous year, Better Homes reported, citing Dubai Land Department data.

This was considerably lower than the current market conditions required, the agency added.

“While buoyant market conditions prompted developers to announce more than 80,000 new homes in 2023, their delivery is not anticipated until late 2025 and into 2026,” according to the report.

“The modest increase in supply projected for 2024 is unlikely to keep up with demand, amidst Dubai's rapidly growing population, offering little relief to tenants.”

Communities expected to see most residential handovers in 2024 are Jumeirah Village Circle, Business Bay, Mohammed Bin Rashid City, Arjan, Jumeirah Lakes Towers and Al Furjan, the agency estimated.

Meanwhile, a combination of rising rents and a desire for long-term stability have motivated tenants to transition into buyers despite higher interest rates, the report said.

The Dubai real estate market continued to break records in 2023, with 120,742 residential sales transactions, up 38 per cent on the previous record of 87,454 set in 2022, Better Homes said.

This growth came predominantly from apartment sales, which increased by 49 per cent to 94,155, the agency said.

The villa and townhouse segment grew more modestly, up 9 per cent to 26,587, largely due to a lack of supply in key communities.

Off-plan sales were responsible for the majority of the growth in transactions last year, up 48 per cent year on year and accounted for 54 per cent of all residential real estate sales, according to the research.

This growth was from the sale of apartments, which increased by 63 per cent year on year and made up 87 per cent of transactions in the off-plan market, Better Homes reported.

In Dubai’s secondary market, transactions increased by 21 per cent.

The sale of apartments was up by 32 per cent, while the sale of ready villas and townhouses went up by approximately 3 per cent.

The total value of properties sold in Dubai last year was Dh322 billion, up 52 per cent year on year, Better Homes estimated.

Overall, prices in Dubai rose by approximately 18 per cent last year.

“This has put average prices at a record high, more than 3 per cent above the previous market peak seen in September 2014,” Mr Waind said.

“Recently, higher interest rates have gone some way to dampen demand and price increases in the secondary market.

“If, as the market currently expects, interest rates begin to fall sometime in 2024, this would make mortgages more affordable, increasing buyer demand and putting further upward pressure on prices.”

The company expects a significant increase in the number of new homes delivered this year, as developers begin to complete projects announced in the post-Covid construction boom.

If the new supply is delivered as expected, this could lead to a deceleration in the rate of price increase observed since 2021, the agency estimated.