By Ishrath Jaigirdar
Dubai, UAE
A further increase in house rent could start biting the middle-income families and rent-related inflation could affect the UAE population in the coming months, if the rent increase isn’t contained, latest market reports suggest.
Although the situation isn’t that bad yet – as inflation rate in the UAE hovers around 3.2-3.4 percent as per the UAE Central Bank data – however the growing demand for housing could push the rents further up if supply do not catch up. Dubai is expected to see the addition of 32,000 new housing supply that might rebalance the demand-supply situation.
Meanwhile, Dubai, the commercial capital of the UAE and one of the world’s top-performing real estate hubs, has seen steep price increase in freehold homes in 2023. The US$143 billion industry marks the commencement of price stability post pandemic. The upward growth of prices towards stability can be viewed as a necessary evil. Prices across sales and rents have inevitably risen due to high demand, which are reflective of the industry’s successful efforts to overcome adverse challenges. However, this will consequently impel the city’s residents to fish out more money from their wallets, taking a toll on their budget.
Price rise, along with increase in rents, is evident across all kinds of property in Dubai. As per Asteco, a leading estate agency, sales price for apartments and villas grew to 2 percent and 3 percent respectively. High-end apartments in Palm Jumeirah and Downtown Dubai saw a rise in sales value by 25 percent when compared to Q2 2022. Villas jumped to 31 percent in the same period.
Meanwhile, rents of apartments increased by 6 percent and those of villas rose by 3 percent, with Palm Jumeirah apartments and villas ranking as the most expensive by 30 percent and 25 per cent respectively on a yearly basis.
The overall increase of property value will undoubtedly put pressure upon the expenditure of tenants. This will be an additional burden to the increasing inflation across other essential commodities. Asteco notes that the demand will sustain despite any sign of price reduction. To lessen the impact of increased rents, residents are more likely to shift to more affordable locations, according to the UAE Central Bank.
According to The World Bank, the UAE experienced an inflation of 4.8 percent in 2022. By Q1 2023, inflation due to housing prices recorded a 4.9 percent. This will lead people to choose mid-range to lower end properties. On a yearly basis, the most affordable locations experienced the minimum increase in prices. Apartment rents in Deira have risen to 15 percent.
Moreover, the comparatively lower rents have yielded higher transactions in Q1 2023. Dubai Land Department noted the increase of rental yield by 8.2 percent and a decline in residential sales by 3.5 percent. This illustrates that many Dubai settlers are opting for rentals rather than buying properties. Furthermore, Asteco found that affordable housing demands are increasing despite lack of advertising. The willingness of residents to relocate to budget-friendly spaces can be one of the driving factors to avoid the effect of inflation on their expenditures. According to Asteco, this may provide fruitful impetus for developers to deliver more affordable mid-range housing facilities.
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