Rents rise amid property market boom in Dubai

Tenants nearing the end of contracts are facing tough negotiations with landlords, whose properties have been revalued by Dubai Land Department under the Real Estate Regulatory Authority (Rera) rent calculator.

The increase in prices in prime villa communities is leaving some tenants facing the prospect of moving to more affordable areas.

“Rental valuation certificates now allow owners to get their properties revalued,” said Louise Heatley, owner and managing director of Exclusive Links Real Estate Brokers.

The revised Rera rental calculator – allowing for up to 20 per cent annual increase in some instances – reflects current market rates, which are already high, she said.

Ms Heatley, who has worked in Dubai for more than 20 years, said a surging rental market with demand outweighing supply has made some tenants rethink where to live.

“We have been checking the calculators, going to tenants and saying the landlord is entitled to increase [by] 20 per cent, which is quite significant,” she said.

“We found some were giving up their tenancies and trying to move to more affordable areas.

“A lot of people are moving further out of the city, particularly families that need a certain number of bedrooms, to Damac Hills 2 or Dubai South."

Renewals

In the first quarter of 2024, Dubai Land Department data showed rental registrations were up 5.8 per cent from 2023, at 159,941.

Real estate consultancy CBRE figures backed up the trend that more tenants were looking to renew existing contracts with a rent increase, rather than move into an overheated rental market.

Growth in new rental registrations for the first three months of the year stood at 12.3 per cent, while the number of new contracts registered fell by 4.1 per cent, CBRE data showed.

Firas Al Msaddi, chief executive of fam Properties, said yearly rentals in Dubai are at an all-time high.

“We have observed a significant increase in yearly rental rates for residential properties, particularly in the city centre and waterfront areas,” he said.

“This has caused rental spikes in other locations, such as Dubai South, as more residents relocate. Many short-term rental tenants have also converted their leases to long-term agreements.”

At the end of 2023, the average rent increased by 26 per cent compared to the same period 12 months earlier, rising to Dh92 per square foot, according to the 2024 Deloitte ME Real Estate Prediction Report.

Mr Al Msaddi said the Rera rental index uncapped adjustment has helped close the gap between renewal and new rental deals.

“These new adjustments have resulted in a decrease in the total number of renewals and prompted tenants to relocate to urban areas,” he said.

“I believe one of the necessary measures [to add stability] is for the Rera Index to differentiate between furnished and unfurnished properties to establish an accurate benchmark for comparison.

“We anticipate a slight market correction by mid-next year, driven by the expected all-time high supply of 37,000 units.”

Off-plan villas

Residential areas due to see new projects handed over to owners in 2025 include Dubai Marina (8,978 units), Jumeirah Lakes Tower (3,080), Business Bay (6,647), Jumeirah Village Circle (8,576) and Dubai Creek Harbour (4,234).

At the 742-acre Tilal Al Ghaf villa community, 6,500 residential units will become available, while the nearby Damac Lagoons project is due to release some 9,000 villas on completion.

“From what I see now, there are a lot of tenants being priced out of the communities they're living in,” said Dean Charter, owner of Paragon Properties.

"Some have had to go back to living in apartments, so there's a shift in their lifestyle.”

However, the grounds for evicting a tenant are tightly regulated. A 12-month eviction notice is issued only if the property is being sold, or the owner decides to move in, or for extensive renovation work that would make the property uninhabitable.

If a tenant is evicted and the landlord re-rents the same property for a higher price, the tenant can file for compensation. It could result in the judge awarding costs based on damages suffered, the equivalent of an annual rental fee, or the difference between current rent and the re-rented amount.

Illegal evictions

James Gosling, a Briton who has been in Dubai for 22 years, filed for compensation after being evicted from his home in Jumeirah Golf Estates.

His landlord had claimed he was selling the property, but he re-rented it above the 20 per cent Rera mark.

“Within two weeks of us vacating, the owner put the rent up by Dh300,000,” said Mr Gosling, who raises capital to install Wi-Fi in workers' accommodation.

After paying more than Dh60,000 in moving costs and legal fees, the Dubai Rental Disputes Centre awarded Dh280,000 in compensation.

Two years later, however, he is yet to receive any payment as his landlord, who owns 85 properties in Dubai, refuses to comply with the court’s order.

And, to make matters worse, he already has 12 similar cases against him. Mr Gosling is on the verge of "giving up".

“I've seen the boom and bust in Dubai before but this feels different,” he said. “People from my social groups are leaving Dubai as it’s getting too expensive to live here.”

High legal costs

The RDC's digital line has simplified the process of logging rental disputes. It has automated the calculation of a rental claim and improved the process of setting up payment plans for fines and compensation.

"However, most people aren't willing to take these matters to court, especially against a landlord who is often financially stronger than them,” said Bassel Boutros, senior associate at BSA Ahmad bin Hezeem & Associates LLP.

And, the high legal costs also act as a deterrent. “They will have to pay court fees, which can be up to Dh22,000 for the eviction claim, as well as attorney fees," Mr Boutros said.

Mr Boutros admits that not "all landlords are acting in bad faith, as some have a legitimate right to recover the property" but tenants should also be protected and "be able to claim compensation if the landlord was acting unlawfully".

This situation is not damaging the property market, but of course, some people have been impacted by this, mostly tenants, he added.