Rising rents in Dubai: Speculators, holiday home owners opting for long-term rentals of their properties

Speculators and holiday homeowners who used their Dubai properties just a couple of times in a year are increasingly opting to rent for full-year it out to benefit from the spike in rental returns.

“With the increase in rentals, long-term speculators or holiday home owners who come twice a year to Dubai to their holiday home are forced to rethink because the same property which had a rentability of Dh150,000 earlier, today it is Dh450,000. So they are encouraged to rent their units also. The occupancy of 45 days – 15 days during Christmas and 30 days in summer – has improved to 365 days because a resident is living now,” said Imran Farooq, CEO of Samana Developers.

In an interview with Khaleej Times, he said seen to eight per cent returns on rentals is very easy and if investors put their units on online platforms such as Airbnb, they can look at double-digit incomes.

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Rentals in Dubai have grown at a double-digit rate in the past three years and this trend is expected to continue in some of parts of the emirate. However, most of the areas could see a softening of the rental growth in 2024 and 2025.

He added that demand for Dubai as a city for tourism and to live is substantially growing, hence, driving property prices and rentals higher. “Because of higher rentals, the motivation to keep your part-time apartment for purpose has changed to full-time renting apartment. Even long-term speculators who wanted to keep the apartment vacant, now they have a big pressure to make the most of this property by renting it out,” he added.

The emirate’s property market is benefitting from the geopolitical tensions around the world due to its safety and security aspects.

“Post-Expo 2020, the commercial boom is helping Dubai and more people are successful in business post-Expo than pre-Expo. The ‘feel good’ factor among the business community is at the strongest level. Then there is a big boom in India, and Bangladesh and people are doing extremely well financially. So the first thing that they want to do is to move their family for education to a safer place. But visas to Western universities are a challenge, hence, Dubai is the biggest beneficiary.”

Minor correction, if it happens

He added that the scenario and fundamentals of the property market are completely different now as compared to 2008 as both investors are market players are more mature now.

“Dubai property market is very mature because buyers have factored in full payment whether they are off-plan or ready property. In case of any global crisis also, the impact is not going to be as strong as previous crashes. In 2008, there were no Escrow accounts. Today, banks are flooded with hundreds of billions of dirhams of Escrow money. If there is a small correction at a global scale, I see a small correction in the local property market and it will resume again. Plus, I don’t see slowing down in construction with a large majority of the developers.”

Farooq added that the Dubai market is currently driven by end-users’ and long-term investors’ demand, hence, flipping is very minimal.

50% capital appreciation

Farooq revealed that investors who invest in an off-plan unit at the early stage of the project can still enjoy about 50 per cent of capital appreciation until the handover of the project even though the market is expected to slow down after a strong three-year post-pandemic rally.

“Investors can enjoy about 50 per cent capital appreciation from buying an off-plan property to its handover. With the current lvel of demand, this trend will continue.”

In the past six months, the Samana Developers CEO said there was a crazy demand for commercial office space. “And that is where investors are stepping and flipping is happening because on average A-grade commercial office space has appreciated by 80 per cent in value in the last 15 to 18 months. Rents have also gone up from Dh100 per sqft to Dh225 per sqft in the same period. Land for villas, townhouses, and commercial property have seen a huge jump in prices. Commercial building land plots in the last 24 months appreciated on average 300 per cent.”

Imran Farooq added that townhouses and villa plots used to be Dh250 per sqft in 2020 which have jumped to Dh2,300 per sqft.

“Townhouses in Al Furjan and JVC have become a rare commodity and rates in these areas have gone as high as Dh700-800 per sqft. A JVC plot for a G+4 building in 2020 was Dh60 per square foot. Today, one has to make a lot of effort to buy it for Dh300 per square foot. Low-rise Arjan used to be Dh100 per square foot and today it is about Dh300 and almost impossible to get."

"People who got it for Dh20 million are now flooded with Dh60 million offers, but the seller still doesn’t exit much because they fear that if they sell it, they may not be able to buy something else. This is the same trend in many other areas. There is a similar kind of appreciation in Jumeirah Village Circle, Jumeirah Village Triangle, Arjan, Furjan, Marjan, IMPZ and Dubailand. Dubai Island is the new area where the sale price has jumped 50 per cent in the last six months from Dh200 to Dh300 per square foot,” he added.

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