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Looks At The Primary Reasons For Tenants To Buy Instead Of Rent
Najam-us-Saqib, a Dubai-based entrepreneur, invested in a budget-friendly studio apartment located on the outskirts of the city. Preferring convenience, he chose to rent an apartment in the Al Qusais area, close to his office and his children’s schools. While renting out the studio apartment he purchased.
Najam is one of the many locals who changed from being a renter to a homeowner, saving thousands of dirhams in rent. While also benefiting from capital appreciation thanks to high demand among the growing population, particularly the influx of billionaires in the previous two years.
Demand for real estate in Dubai has never been higher thanks to both locals and visitors. Despite claims to the contrary, locals are increasingly buying instead of renting, drawn by a variety of causes including ready-to-move-in properties, higher investment returns, rent savings, an expanding population, and rising earnings.
Because of the high level of confidence, these are exciting times for developers and investors in Dubai. Unlike the 2008-2009 period of rapid growth, today’s investors and residents are focused on end-use, either for rental income or personal occupancy, rather than quick flipping, notes Rizwan Sajan, founder and chairman of Danube Properties, a leading private developer.
According to Imran Farooq, CEO of Samana Developers, moving from renting an apartment to owning a home has many benefits, including removing the need for paying rent, allowing residents to become their landlords, and allowing homeowners to invest in multiple properties they can afford and rent them out for investment purposes.
Factors Driving Tenant-to-Buyer Trend in the UAE
Here are the main causes of the rising trend of tenants becoming buyers in the UAE:
1. Increased Population
The population of Dubai increased by more than 50,000 this year, reaching 3.612 million in August. Many high-net-worth people have moved to the emirate, but many professionals have also immigrated to the nation in search of greener pastures. The UAE recruited 5,200 millionaires in 2022, the most in the entire globe. The Emirates are expected to draw 4,500 more high-net-worth visitors this year, making them the second most in the world. Due to the increased demand for apartments brought on by this significant influx of foreigners, long-term residents are being forced to consider buying freehold homes more and more frequently.
2. More Alternatives Result From New Releases
Developers are starting more new projects because of the high demand. For instance, Danube Properties, the fastest-growing developer in the UAE, has introduced nine projects in the last 18 months, or one every two months.
Over 32,000 residential properties in Dubai, including villas and apartments, will be handed over this year, according to a forecast by real estate consultancy Asteco. This represents a stable supply of new units to satisfy growing demand. Tenants now have additional alternatives for becoming their landlords thanks to these recent launches.
3. A Developed Market
Tenants are now aware that the local real estate market is more developed. Because there are, more laws and regulations in place than in 2008–2009. They are sure that their units will arrive on schedule and that their money will not be wasted.
Investors suffered losses in the 2008–2009 period. Because of project delays brought on by the financial crunch among developers. However, in the most recent pandemic crisis, this was not the case. Despite the possibility of modest delays brought on by pandemic limitations, projects are progressing according to plan.
“Government regulations have also been tightened for developers. No developer can just announce and launch the project. The Land Department must receive payment for a certain amount of bank guarantee. The developer must present a bank guarantee before the project may be sold. Second, the Escrow account is receiving funds from buyers. The Land Department is also conducting a property audit. Therefore, the Department is keeping an eye on all developers to make sure that the money they get from investors goes into an escrow account, according to Rizwan Sajan.
4. Availability of Homes That Are Ready To Move Into
Since there are so many ready-to-move-in apartments in Dubai, tenants are choosing to buy them instead of renting them out and moving in. Renters have the option to convert their monthly rent payments into equivalent monthly installments (EMI) using this option. To capitalize on the trend, the biggest developers, including DAMAC Properties and Danube Properties, have been aggressively marketing to tenants, offering them up to 85% of the mortgage and monthly payments as low as Dh3600.
5. Cheaper Homes, Greater Returns
Additionally, real estate in Dubai is significantly less expensive than comparable homes in Europe, Asia, and the US. According to Knight Frank’s Wealth Report, the cost of prime real estate in Dubai is 20–80% less than those of major cities like Monaco, Hong Kong, New York, London, Geneva, Paris, Beijing, and Tokyo. As opposed to 17 sqm in Monaco, 21 sqm in Hong Kong, 33 sqm in New York, 34 sqm in London, 43 sqm in Paris, and 60 sqm in Tokyo, 105 sqm in Dubai may be purchased for about $1 million. A significant draw for residents to switch from tenants to buyers is the return on investment, which can reach 12%.
6. High Rent
According to real estate consulting firm CBRE, average rentals in Dubai rose by 22.8% in the year to June 2023. While average prices soared by 16.9%, the fastest rate of growth since late 2014. Tenants are being forced to acquire more homes as a result of rising rents, particularly those who plan to stay in the nation for an extended period and have retirement, golden, or silver visas. The growing costs are another draw for them. Many Asians are reportedly selling their possessions in their home countries and moving to Dubai, according to brokers and developers.
Imran Farooq, CEO of Samana Developers, claims that many Dubai residents are considering buying a property to avoid landlords’ unfavorable rent increases as rental costs continue to rise. Even people with modest means are currently researching the prospects of co-owning the property. Given the recent economic boom in Dubai, I predict that this trend will remain for the next two years,” says Samana CEO.
7. Increasing Pay
In the early stages of the UAE’s post-pandemic economic recovery, demand for talent increased significantly. Companies raised wages to attract and keep the best employees. For instance, following a record profit in 2022–2023, Emirates Group increased compensation and benefits for its 100,000+ employees. Residents have been able to make good savings and hunt for better investment options as a result. Residents choose to buy and rent, or live in, flats rather than depositing money in banks to earn interest because banks give lower returns than real estate investments.
