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Average Dubai rents jumped 24.2% in the year to May. With supply rising in areas like Dubai South and Arjan, could rent-to-own schemes tempt more end-users to buy?
Should developers bring back rent-to-own offers to get more end-users buying a home?
Dubai renters hoping for a slowdown in rent growth in the second half of 2023 are unlikely to get their wish. New and renewed leases are allowing landlords to ask higher prices in the coming weeks, whether it's a home on the Palm or a newly delivered home in a mid-sized Arjan block.
Average rents across Dubai rose by 24.2% in the 12 months to the end of May, according to a survey by real estate consultancy CBRE.
Affordable locations are catching up
Meanwhile, Dubai's existing and emerging residential areas have all recorded double-digit increases in rents and property values. Take Dubai South, for example. Rents and property values remained stable in 2021 as Dubai's famous destinations such as Marina, Downtown and The Palm increased, but this is no longer the case.
"In Dubai South, rent growth (up 15%) in the 12 months to June has been far outstripped by the gains in property values (up 26%). That's because the new apartments and villas are attracting end-users, as are the older developments there."
Rental prices for ready-to-move two-bedroom apartments in Dubai South range from AED 60,000 to AED 65,000, based on listings on major real estate portals. The ones at Expo Village are costlier, at over AED 80,000.
Renting still the best option?
The situation in another fast-emerging mid-market residential location, Arjan, shows a different dynamic. Rents are going up more in Arjan even with all the new off-plan project launches and recent handovers of completed homes. One would have thought this would dampen rent increases, but it hasn't. The reason is that it costs more to mortgage a property in Arjan right now than it does to rent there.
An off-plan property is selling at Dh1,250 per square foot on average, while ready stock in Arjan is around Dh850 (and there aren't that many ready units available). Two-bedroom units in Arjan are currently listing for Dh70,000 and over on average.
Bring back rent-to-own schemes?
In the current market upturn, most developers in Dubai are yet to get serious about offering rent-to-own schemes for tenants wanting to turn buyers. They may not have a reason to do so, as their off-plan launches are meeting heavy demand from investors, both local and overseas.
Many of these investors are betting big that rental demand, and rate hikes, in Dubai will continue to hold sway for some time to come. Some overseas investors want to buy in bulk, about 20 ready apartments at or around Dh1 million each. Every investor in Dubai real estate has an eye on the city adding to its population base.
But if developers want more end-users, offering rent-to-own schemes is the way to go, insist some market sources.
End-users too need to be in developers' focus
More residents in Dubai are convinced they need to buy a home for themselves here. Higher property values and mortgage rates might be a deterrent, which is why they need to be offered payment options such as rent-to-own.
Focusing on investors alone will not add depth to the market. As happened in 2021, when the current Dubai property market wave took off, the need is for more end-user buying. Whether on the Palm or in Dubai South, or wherever they get a choice.
