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50% rent hike? Record property demand in Dubai is creating nightmares for some residents

BusinessReal Estate50% rent hike? Record property demand in Dubai is creating nightmares for some residents
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Aerial view of Dubai Marina.

Dubai, United Arab Emirates – Demand for property in Dubai, the glitzy commercial capital of the United Arab Emirates, hit a record high for the first two months of 2023, real estate services firm CBRE revealed in a report published on Thursday.

In February alone, 8,515 transactions took place in Dubai’s residential market – a massive increase of 43.9% over the previous year. A total of 17,741 residential transactions took place in January and February.

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Beyond the property market, Dubai’s economic boom is evident in everyday life.

Every week, a new high-end restaurant appears in the desert emirate, which within the past few decades has transformed from a small fishing village into a bustling, ultra-modern metropolis. Downtown bars are most crowded in the evening. The city’s Roads and Traffic Authority recently reported record road traffic and public transport use over the past year. Residents often complain that on any given evening of the week – even Monday nights – it takes longer than ever to order a taxi.

But while some residents of Dubai – about 90% of whom are expatriates – struggle to book a ride or restaurant table, it is frustrating, the sharp and often exorbitant increase in fares that is hitting many of them hardest. Is.

“An increase of 60%,” a Dubai-based consultant told CNBC when asked how much his rent has increased year-over-year. The consultant, who was living in Dubai’s high-end financial district, DIFC, decided to relocate rather than pay the new rent. Many other DIFC residents reported rent increases of 50% and more to landlords, and many of them have relocated to more or less expensive areas.

The Dubai International Financial Center (DIFC) area of ​​Dubai, United Arab Emirates, with the Burj Khalifa in the background, September 16, 2022.

Christopher Pike | Bloomberg | Getty Images

Dubai’s land department has a body called RERA, the Real Estate Regulatory Agency, which stipulates that landlords cannot demand a rent increase above a certain percentage based on the current market value of the property. But DIFC functions as its own legal entity, which is not bound by RERA regulations.

“Essentially DIFC is the Wild Wild West,” said the consultant, requesting anonymity due to professional restrictions. “There is no control.” The DIFC authority did not respond to CNBC’s request for comment.

Even outside the DIFC, however, rents and sale prices are skyrocketing.

“There are not enough properties; the Dubai Lands Department recorded 8% availability which is the lowest since 2008,” said Nazli Aker, sales and leasing agent at D&B Properties. “Property owners know about it, hence why they keep raising their rental prices. And believe me, there are people who are willing to pay the price.”

And landlords are finding ways around RERA rules, pushing out tenants by claiming that they are moving into the house themselves or selling it, and then renting it out to a new tenant, whose For this they charge more rent than the limit of RERA. Brokers say this practice is illegal, but it often happens because many tenants are not aware of their rights.

Vehicles drive on a street in front of skyscrapers in Dubai on February 18, 2023. Dubai to see record real estate transactions in 2022, mainly due to an influx of wealthy investors, especially from Russia.

Mr. Karim | AFP | Getty Images

Aker explained how rents are set to double in various areas of Dubai between 2021 and now. Property prices too – CBRE says sale prices are up 11.5% on average till February 2023.

But many sellers have seen very high returns. A Dubai expat, who requested anonymity for professional reasons, bought a residential property in early 2021 for around 4 million UAE dirhams ($1.09 million), renovated and redecorated it, and sold it for double the price within the year .

The current environment is night and day compared to the beginning of 2020.

Even before the coronavirus pandemic hit, Dubai’s property sector had fallen by around 25% over the last five years, largely due to overbought market conditions. As the market bottomed out in the spring of that year, buyers snapped up affordable properties, renovating them and starting to rent to tenants and visitors as Dubai opened its doors to tourists and investors, while the rest of the world Most parts remained in lockdown.

Within about 18 months, the area had made a dramatic improvement.

The rental market is ‘bonkers’

Just as many property owners are taking advantage of today’s market to make lucrative sales, landlords know that as more and more people move into Dubai, there will also be people who can afford to pay their high rental rates. are willing to.

“I’ll start with the word bonkers. The rental market is absolutely crazy right now,” Ricardo Scala, a Dubai-based luxury property broker and founder of Ricardo Scala Estates, told CNBC. “In the past year and a half, prices have doubled and tripled.”

The Palm Jumeirah in Dubai, United Arab Emirates on Wednesday, Sept. 28, 2022. The emirate’s prime real estate prices rose by 70.3% in the 12 months through September, making it the biggest gainer on the Knight Franks global index, which focuses on One of the most desirable and expensive homes in the city.

Christopher Pike | Bloomberg | Getty Images

According to CBRE research, the average rent in Dubai is set to increase by 27.7% by February 2023.

Dubai’s famous Palm Jumeirah, the man-made archipelago designed to look like a palm tree, is a favorite for wealthy renters and buyers looking to have their own private beach and take the cake for the highest rents in Dubai . The average annual rent for apartments and villas reached 260,467 dirhams ($70,920) and 1,017,614 dirhams ($277,079) respectively in February.

russian buyer

It is well known at this point that a significant proportion of the previous year Assets traded with the Russians, Stroll through the popular Dubai Marina or Jumeirah Beach Road area and it is almost impossible not to hear Russian spoken.

“Because of the war between Russia and Ukraine, we’ve had a huge influx of Russian customers,” Acker said. “At the end of Q3 in 2022, they were the most transacted nationalities. Again, owners are aware of that and are therefore taking advantage of that statistic.”

Scala said there has also been a significant increase in buyers from Germany, Switzerland, Italy and the UK.

Russian President Vladimir Putin meets with President of the United Arab Emirates (UAE) Mohamed bin Zayed Al Nahyan in St. Petersburg, Russia, October 11, 2022.

Russian Foreign Ministry Press Office Handout | Kremlin Press Office | Anadolu Agency via Getty Images

The UAE’s policy of being open to business for all nationalities – including those from Israel, which many Muslim countries cannot enter, and those from Russia, which is heavily sanctioned by the West – has paid off, as well. The openness and relative normalcy of Dubai during most of the Covid-19 pandemic.

The country’s various liberal social and economic reforms over the years, such as its remote-worker visa and allowing 100% foreign ownership of some businesses, have also attracted new residents and companies.

Dubai ‘knows what it’s doing’

“I think Dubai as a government knows what it’s doing,” Scala said. “I think they’re very smart with their game plan. If you think about it from a very simple level, whenever something happens anywhere in the world, any sort of conflict or problem, I can see within 14 days a lot I can guarantee more. Dubai will announce some sort of incentive so that more people come to Dubai.”

Meanwhile, nobody expects property prices to ease any time soon.

Scala believes that the prices will stabilize for some time, they will remain at the current rates. “With my colleagues in the industry, I find it difficult to see how prices are falling so low right now when the only people paying the price are us. What we don’t want to do,” he said, “is to Have to keep going higher and higher.”

Hussain Sajwani, founder of leading Emirati property developer DAMAC, is bullish about Dubai and sees a steady rise in the market.

“Dubai is getting more expensive and it will get more expensive, it’s a fact of life,” Sajwani told CNBC in January. “Because you have a lot of wealthy people in large corporations, demand goes up, and they can pay higher prices,” he said.

When asked if it would cost people out of town, however, he replied, “No, I don’t think so.”

Some tenants in the city may disagree.

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