Dubai residents forced to move as soaring rents ‘far outstrip’ salary increases

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Property agents and financial experts in Dubai said soaring property prices across the emirate are forcing cash-strapped residents to pack their bags and downsize as inflated rents outstrip salary increases.

Dubai’s property market rebound has boomed in 2022 as the emirate’s economy continues to make a strong post COVID-19 recovery.

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It means many residents are facing steep hikes in rental increases from landlords – with some asking for double the cost residents were paying during the height of the pandemic.

For some, it will mean moving out of their homes to smaller villas or apartments or finding a property in cheaper, further-to-reach areas as residents battle with rising rents while facing stagnated salaries that are not at par with the homes they rent, say experts.

Omar, 34, a Lebanese expat, who works as a Brand Manager in the FMCG industry in Dubai, told Al Arabiya English that his landlord has increased his rent by 10 percent.

“I had an increase of 10 percent while some friends suffered an increase of 15 to 20 percent in their rent.”

Omar lives in Jumeirah Village Circle, one of the most popular up-and-coming residential areas in Dubai, with new buildings, modern infrastructure and slightly more affordable rents.

“For now, it is still bearable since I had gotten a good deal before the increase, but if a further increase takes place, I’m definitely moving out to a more affordable flat.”

Steep hikes

An aerial view of Jumeirah Village Circle, Dubai, UAE. (Twitter)
An aerial view of Jumeirah Village Circle, Dubai, UAE. (Twitter)

Harry Tregoning, of Dubai-based property company Tregoning Property, told Al Arabiya English that rental increases are emirate-wide, but the steep hikes are in exclusive communities and in particular facing those who rent villas or townhouses.

“Rents are increasing in all areas, but it is in the high end that we are seeing the biggest increases,” he said. “We know of many properties that are renting now for double pre-pandemic prices.”

“Villas definitely saw the increases start first as residents looked for space and gardens during the pandemic. Communities such as Palm Jumeirah and District One seem to have seen the biggest rise in rents with many doubling or more and their secondary sales market has exploded.”

“Apartment rises then followed a similar trajectory to the villas.”

Tregoning said it’s hard to predict the rental market in 2023, as global socio-economic factors continue to attract people from across the world to use Dubai and the wider UAE as their base.

“Worldwide and local policy and economic conditions continue to be at play,” he said. “There seems to be no end at present to the popularity of Dubai and the UAE as a place to live and work.”

New, expanded visa options prompt expat migration

Property Finder exclusively told Al Arabiya English that in October and November this year, it recorded around at least 53,000 newly registered rental contracts each month, representing a 7.5 percent increase since November last year. Meanwhile, the non-annual contracts witnessed a slight month-on-month increase of 1.1 percent compared to October 2022.

Last month also saw a surge in property sales transactions, Property Finder revealed, accounting for more than 10,000 transactions for the first time in years.

The FIFA World Cup in Qatar has attracted millions of tourists to Dubai and Abu Dhabi. Real estate experts believe that it has also spurred a boom in short-term rentals, specifically in Dubai.

The demand for more property in the UAE has skyrocketed since the launch of megafestival Expo 2020 Dubai last year and the World Cup in Qatar which kicked off last month.

The UAE has also introduced several new and expanded visa options – such as the highly sought-after Golden Visa – attracting an enormous wave of investors, remote workers, and business owners into the country which have made way for more job opportunities.

During the third quarter of 2022, the UAE recorded a three percent increase in job creation, mainly driven by these new visa options.

“With the government all the time making it more attractive through Golden Visas and other schemes, I cannot see prices falling in the next year. However, there is a high chance they will not continue to increase at the rate of the last two years,” Tregonig said.

“Naturally, rents will go up as the market is strengthening, however not to the extent it rose by this year,” said Daniel Hadi, Managing Director - Residential of Betterhomes, a Dubai-based real estate brokerage.

“The recent large migration of expats and their families to the UAE continues to impact average rental prices. GEMS Education announced in September that intake in their schools was up 7 percent year-on-year, which is a great indication of the number of new families now calling Dubai home.”

The average rental price of villas leased via Betterhomes rose by 60 percent year-on-year, Hadi told Al Arabiya English, adding that it is “both a reflection of increasing prices and the prevalence of more luxury villas being leased.”

A picture shows a view of the Dubai skyline, including Burj Khalifa the world’s tallest building, in the United Arab Emirates, on June 20, 2022. (AFP)
A picture shows a view of the Dubai skyline, including Burj Khalifa the world’s tallest building, in the United Arab Emirates, on June 20, 2022. (AFP)

The average leasing price of townhouses rose by 35 percent, and apartments also saw a surge in the average rental prices of 36 percent year-on-year.

“Higher rental prices are resulting in a drop in transiency in the rental market. Tenants are looking to stay put in their current homes on lower rental contracts, while new tenants arriving in town are finding less and less options available. Betterhomes recorded a 57 percent increase in renewals year on year, while the number of new tenants looking to move has dropped by 19 percent,” Hadi added.

According to data from Dubai’s Land Department, villas and townhouses in areas such as Arabian Ranches and Emirates Living witnessed the average rental prices increase by 14 and 19 percent compared to Q3 last year, while Dubai Hills recorded price increases of 31 percent.

Apartments in Business Bay increased by 11 percent, Jumeirah Lake Towers by 14 percent, and Downtown Dubai by 19 percent.

Wages vs Rent

General view of Dubai Marina, Dubai, UAE. (Unsplash, Adam Le Sommer)
General view of Dubai Marina, Dubai, UAE. (Unsplash, Adam Le Sommer)

Tregoning said the rental increases will see people moving or downsizing due to the disparity between salary increases and rental hikes.

“Rent increases far outstrip salary increases and we have very much seen that residents are not moving internally as much as before,” he said. “If they are moving, it is downsizing and moving to cheaper areas.”

“With rents increasing up to 40 percent in the last year and the economy increasing by 6.1 percent, there is a disparity in the rate that rents have soared.”

A definite pattern of the rising rents is that it has driven more people to buy their own properties, said Tregoning, especially with new UAE visa rules allowing people more flexibility to stay and work in the UAE.

“With bad experiences of landlords and wanting to be in control of their own destiny this has made ownership much more attractive as have the Golden Visas available to homeowners.”

“To some landlords this is a correction that was needed as many were not running economically viable properties or were breaking even and this gives them a chance to make up for the quieter years. But this trend will not be popular with those who are not receiving rises in their own salaries.”

Dubai government regulations require landlords to serve an eviction notice of 12 months and then either move in themselves or sell the property.

Employees walk to work on the first working Friday in the Gulf Emirate of Dubai, on January 7, 2022. (File photo: AFP)
Employees walk to work on the first working Friday in the Gulf Emirate of Dubai, on January 7, 2022. (File photo: AFP)

Once they have evicted a tenant, they are forbidden from making the property available for rent for at least two years.

There are also rules in place for how much increase landlords can demand from sitting tenants.

Legal rights

Michele el-Khoury, senior associate at Dubai-based legal firm BSA, told Al Arabiya English that there is maximum (legal) rate at which landlords can increase the rent of their property in Dubai.

If the value of the rent is 10 percent less than the average market value at the time of renewal, the landlord cannot increase the rent, el-Khoury explained. The market value is determined by the country’s Real Estate Regulatory Agency (RERA).

However, if the value of the rent is 11 to 20 percent less than the average market value of similar properties in the considered area at the time of renewal, the landlord is entitled to increase the rent by five percent.

Landlords are entitled to increase the rent by 10 percent if the property’s rent is 21 to 30 percent less than the average market value of similar properties in the area at the time of renewal.

In order for landlords to increase rents by 15 percent, their property would need to be valued between 31 to 40 percent less in rent than the average value of similar properties in the area.

To qualify for a 20 percent rent increase, the value of rent would need to be 41 percent less than the average market value of similar properties in the considered area.

“The landlord shall give a 90-day notice to the tenant, prior to the renewal date. Free zones (e.g., DIFC) may have specific regulations which only apply to the premises located in the relevant free zone.”

El-Khoury said, when it comes to rental rates versus stagnated salaries, there are no specific clauses under UAE labor law which protect employees in case of inflation and advised employees to “properly negotiate their employment agreement to ascertain that their rights are effectively preserved.”

“As a matter of practice, employers in the UAE usually increase the wages on a yearly basis,” she said.

“The labor law in the UAE is drafted in a way to ensure the efficiency of the employment market and provide an attractive business environment for employers and employees.”

Rupert J Connor, a partner at Abacus Financial Consultants LLC, echoed Tregoning, saying salary increases are not in par with rental increases.

“Salaries as a whole have not increased but certain sectors have seen some increases due to demand for certain skills such as tech, digital and even some areas of hospitality etc,” he told Al Arabiya English. “We are seeing a lot of activity in the UAE currently, which may not continue to grow as fast in 2023 but will likely stabilize to a more sustainable level. Therefore, salaries may be reviewed within some companies, but it won’t be affected greatly in others.”

He said Dubai’s flourishing economy is due to an influx of money coming from outside the region.

“This may be pricing residents out of the market,” he warned. “With every boom comes a peak and then a decline, which is potentially likely to come toward the end of 2023.”

“The likelihood is that the markets will stabilize and with that, salaries will be greatly unaffected.”

“Businesses may read the situation and think about other ways to ease the pressure. Perhaps by looking at bringing in schooling, one-off bonuses, or even supporting with housing payments upfront to help staff negotiate and ride the storm,” Connor said.

Connor also believes rising house prices are forcing people to downsize.

“I believe this is already happening,” he said. “Landlords are also evicting many tenants across all of Dubai for various reasons and forcing people out, who then have the option of paying more for a similar abode or more likely, have no choice but to downsize.”

“The next potential problem is those people who are now moving into the over-inflated dwellings will soon work out that their new rental is not worth the price and the property will be empty after a year. It won’t then be too long before there is once again an oversupply and thus the cycle continues.”

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