Investment in rental property in Dubai: is it worth investing now?

Dubai’s housing market is a smart and liquid investment. It can become not only a source of stable rental income, but also a holiday destination and (in the long term) a residence, if you decide to move. In any case, this investment will not be a waste of money. According to the analytical agency Mordor Intelligence, prices in the emirate’s residential real estate market will continue to grow and will add 12.36% by 2026. Therefore, buying an apartment now, you will multiply your investment.

Dubai as a real estate investment destination

According to statistics, in the second half of 2021, a record number of investors bought Dubai’s propertie, which was one of the best periods for the local real estate market. In addition, according to the Dubai Land Department (DLD), for the whole of 2020, 33,102 residential real estate transactions were concluded in the emirate, and in 2021 – 58,133 with 32,398 sales contracts signed in the second half of the year. According to experts, today is the best time to invest, as prices for properties will obviously grow. Although potential market volatility due to the pandemic does not suggest buying for short-term gains, the market has taken off and Dubai has become even more attractive as investments in local real estate remain profitable.

Analysts note that 2021 results beat forecasts as sales broke previous records and the cost of capital [notional rate of return] largely reached pre-pandemic levels. The total amount of transactions in 2021 increased by 72% compared to 2020, breaking a 12-year record while real estate prices rose by about 10% at the end of the year. That said, housing costs and rents across the emirate are still expected to rise in 2022, but at a more relaxed pace thanks to supportive economic reforms and an accelerated vaccination program. And while in matters of rent, experts have not given specific figures yet, they are almost unanimous regarding the growth in the cost of properties. In their opinion, prices will increase by about 5% this year and a similar situation is expected in 2023.

The recovery was bolstered by three key factors that will support and drive the market going forward: foreign investors, shrinking supply in premium areas, and record low lending rates. Government initiatives (such as the Golden Visa) and simplified business conditions are also cited as growth drivers. The recovery is connected, among other things, with a global event – EXPO 2020. Areas closer to the EXPO venue have become very popular and properties in these areas have risen in price. For example, in Dubai South, where the exhibition pavilions are located, the price of a square metre of residential real estate increased by 44.2% to AED 7,500 (USD 2,000 or CNY 12,900). According to experts, this upward trend will continue even after the end of the event. Both already completed and unfinished properties will continue to be in high demand, as the influx of foreign investors into the Dubai property market will continue. In addition, during the exhibition in the emirate that there was an urgent need for properties for short-term rental. According to experts, the industry set the bar high at the beginning of the year, and the situation will remain the same in 2022.

Growth in the Dubai rental market

The return of foreign investors and the effective measures against the pandemic have become one of the main reasons for the active recovery of the rental housing market. Rental rates continued to rise. For example, in the apartments sector, this figure increased by an average of 3%, villas – by more than 20%, which was due to high demand for large living space in the context of COVID-19. Rent growth for luxury apartments in high-demand areas reached 26%.

Budget villas in popular areas of Dubai have risen in price by 21%. Villas in high-end areas were rented out on average for a 41% higher price than in pre-pandemic times. Some areas, such as Dubai Hills and Arabian Ranches, saw rates rise by 40% due to increased demand.

Residential communities of Dubai Marina, Jumeirah Beach Residence (JBR), Palm Jumeirah, Al Barsha and Downtown were the most popular destinations in the luxury housing category in 2021. Properties in Umm Suqeim, Dubai Hills Estate and Arabian Ranches were also in demand. In terms of rental apartments, Jumeirah Village Circle (JVC), Al Nahda, Mirdif, Dubai Silicon Oasis and Akoya Oxygen were the most popular communities.

According to analysts, tourist areas continue to be popular. For example, homeowners in Dubai Marina, Palm Jumeirah, Downtown can expect 85% occupancy per year. In other words, in these areas, there will always be income from short-term rental of apartments and villas.

Rent fluctuations in the emirate

According to Property Monitor, since January 2022, rental rates for villas in Dubai have decreased in only three areas of Dubai: Palm Jumeirah (-1.34%), Dubai Science Park (-1.61%) and Motor City (-0.33%). The rest of the neighbourhoods have either kept the rent rates at the same level (for example, Emirates Living, Dubai Silicon Oasis and Falcon City of Wonders) or recorded a significant increase.

In general, rent growth rates in the villas and townhouses sectors are as follows:

  • Jumeirah Islands – 5.95%
  • Al Barari – 5.25%
  • Jumeirah Park – 4.12%
  • Arabian Ranches 2 – 4.01%
  • Dubai South – 3.39%
  • Dubai Hills – 2.78%
  • Mohammed Bin Rashid City – 2.51%
  • Jumeirah Village Triangle – 1.86%
  • Arabian Ranches – 1.79%
  • The Villa – 1.66%
  • DAMAC Hills – 1.58%
  • Mudon – 1.58%
  • Reem – 1.55%
  • Jumeirah Village Circle (JVC) – 1.41%
  • Al Furjan – 1.2%
  • Town Square – 1.15%
  • Jumeirah Golf Estates – 1.08%
  • Dubai Investment Park – 0.86%
  • Victory Heights – 0.31%.

In the apartment sector, five districts went negative: Dubai Marina (-0.49%), Emirates Living (-0.77%), Culture Village (-0.59%), Dubai Science Park (-0.96%) and Dubai Investment Park (-0.4%), but in all areas the decrease does not exceed 1%.

The ranking of districts with the highest growth rates of apartment rent since the beginning of 2022 is as follows:

  • Downtown Dubai – 5.95%
  • Al Furjan – 2.98%
  • Dubai South – 2.96%
  • Al Sufouh – 2.93%
  • Living Legends – 2.6%
  • Palm Jumeirah – 2.57%
  • Jumeirah Village Triangle – 2.43%
  • Dubai Hills – 2.41%
  • Business Bay – 2.34%
  • Al Barari – 2.28%
  • DAMAC Hills – 2.24%
  • Motor City – 1.95%
  • Jumeirah Village Circle (JVC) – 1.93%
  • Jumeirah Golf Estates – 1.78%
  • Dubai Creek Harbor – 1.76%
  • Jumeirah Beach Residence – 1.68%
  • Barsha Heights – 1.64%
  • City Walk – 1.56%
  • The Hills – 1.49%
  • Al Habtoor City – 1.48%
  • Dubai Residence Complex – 1.48%
  • International City – 1.39%
  • Dubai Studio City – 1.34%
  • Town Square – 1.32%
  • Al Khail Heights – 1.25%
  • Discovery Gardens – 1.22%
  • Dubai Production City – 1.18%
  • Dubai Silicon Oasis – 1.17%
  • Liwan – 0.98%
  • Dubai Festival City – 0.92%
  • Dubai Sports City – 0.84%
  • Remraan – 0.74%
  • Jumeirah Lakes Towers – 0.49%.

ROIs in the most popular areas of Dubai

Another important point to consider as a residential property investor is the average annual rental income of apartments and villas in relation to their value. Now in the emirate this figure varies from 4 to 9% per year.

This is how the table of ROIs for real estate rentals in Dubai in the most popular areas (V – villas, A – apartments) looks like:

Dubai Marina А: 7,95%
Dubai Silicon Oasis В: 6,95%
А: 4,19%
Downtown А: 6,34%
Jumeirah Village Circle В: 6,29%
А: 6,32%
Palm Jumeirah В: 3,63%
А: 6,15%
Arabian Ranches В: 4,98‒5,69%
Dubai Hills В: 5,47%
А: 5,65%
Jumeirah Beach Residence (JBR) А: 5,64%

Areas of Dubai with the most expensive property to rent

The current top 5 most expensive areas for rent include:

Villas:

  1. Al Barari. The average cost of an annual lease is AED 763,000 (USD 207,700, CNY 1.312 million).
  2. Palm Jumeirah. The average annual rent is AED 634,000 (USD 172,300, CNY 1.008 million).
  3. Jumeirah Golf Estates. The average annual rent is AED 435,600 (USD 118,600, CNY 749,000).
  4. Jumeirah Islands. The average annual rent is AED 374,000 (USD 101,800, CNY 643,000).
  5. Mohammed Bin Rashid City Town. The average annual rent is AED 302,000 (USD 82,200, CNY 519,300).

Apartments:

  1. Al Barari. The average annual rent is AED 236,600 (USD 64,400, CNY 407,000).
  2. Palm Jumeirah. The average annual rent is AED 181,300 (USD 49,300, CNY 311,800).
  3. City walk. The average annual rent is AED 158,600 (USD 43,000, CNY 272,800).
  4. The Hills. The average annual rent is AED 142,500 (USD 38,700, CNY 245,000).
  5. Dubai Marina. The average annual rent is AED 131,000 (USD 35,700, CNY 225,500).

The most expensive rental deal in Dubai since the beginning of the year has been the rental of a villa for 12 months in Palm Jumeirah for AED 5 million (USD 1.36 million, CNY 8.6 million). A total of 65,379 rental contracts have been concluded in the emirate since the beginning of the year.

Important information when buying real estate in Dubai for rent

  • You can rent out property in Dubai for both a short and long term. The average annual income from short-term rental of apartments and villas is from 10 to 12%, from long-term – from 5 to 8%.
  • If you are going to offer a property for short-term rent, please keep in mind that short-term rental contract can last no more than six months (this also applies to renting out housing to tourists). A property management company that has the appropriate license can arrange the rent for you.
  • To choose the best area and property that will ensure you the highest ROIs, it is worth consulting with specialists.

Ax Capital real estate agency is always ready to guide you through the best offers in Dubai, the UAE and help you find the perfect option for both renting out and living. Contact us today and ask all your questions.