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UAE real estate rental growth to slow down in 2024

A new study by ValuStrat, a real estate valuation, and advisory services company, reveals that rental price hikes in Dubai should ease in 2024, bringing some relief to tenants. Despite the strong demand for Dubai real estate in 2023, the rental gains across properties in the emirate will show signs of slowing down next year, according to the report.

Dubai's Residential Market Growth
The ValuStrat Price Index (VPI) for Dubai's residential market shows an 11.7% year-on-year growth for the second quarter of this year, reaching a total of 91 points. Apartments saw 76.1 points on the index and villas 114.9 points, rising 1.2% above the price peaks of 2014.

Capital Growth For Both Villas And Apartments
Notable neighbourhoods with the most gains include Jumeirah Islands, Emirates Hills, Palm Jumeirah, Dubai Hills Estate, and Arabian Ranches. These prime residential areas saw respective capital growth in the villa market of 20.8%, 19.6%, 17.9%, 17.3%, and 16.8%.
Even neighbourhoods with lesser villa capital growth still saw price increases.  For example, the lowest area for capital growth in the villa market still saw a year-on-year growth of 4.6%. The Lakes (at 5.9%) and Jumeirah Village (at 8.1%) then followed.
The apartments sector also saw year-on-year growth, albeit to a lesser extent. Palm Jumeirah, The Greens, Jumeirah Beach Residence, Downtown Dubai, and Motor City led the way in this sector. These areas saw respective capital values growth of 16.6%, 11.4%, 9.8%, 9.2%, and 9.1%
So, Dubai's residential market is staying strong with continued capital growth throughout.

Rental Gains And Villa Valuations
Rental prices for new residential contracts have surged this year, rising by 32.6% compared to the corresponding period last year. Villas have led the increase in new rents, with an average asking rent of 394,500 dirhams ($107,420) per annum. Prime villa valuations and rents have set new records in Q2 2023.

Dubai’s Oversupply Of Apartments
Dubai's real estate market is generally oversupplied, especially in the apartment segment, which represents over 85% of all residential units. This is the main reason the apartment segment has not seen the same growth as villas since the post-pandemic period.

Growth In The Affordable Segment
The affordable segment of the market has seen growth for the first time since the pandemic. Areas such as Motor City and Discovery Gardens recorded gains of nearly 5%. The broadening of the real estate rally into the affordable residential sector is an expected development, as buyers seek better value and hope for capital appreciation.

Rental Contract Focus In 2024
The study expects rental increases for new contracts to continue this year and next year but at a slower rate. As more tenants consider homeownership in affordable communities due to rising rents, rental contracts may come under focus in 2024.
Overall, despite recent rent increases and strong capital growth through Dubai's real estate market, the market expects slower rental growth in 2024. This will provide some needed relief to tenants hoping for a slowdown in rental hikes.
Plus, with strong capital value growth throughout, Dubai's real estate market still presents an attractive investment opportunity. In particular, the affordable segment is now witnessing growth, offering an opportunity for better value investments and strong capital appreciation.