Dubai: Rent-free months, other incentives dwindle for tenants amid high occupancy

Dubai: Rent-free months, other incentives dwindle for tenants amid high occupancy

25 March 2024, Khaleej Times

Incentives like rent-free months and a grace period allowing tenants to move into property a bit early without having to pay rent have almost disappeared from the Dubai rental market. Reason: Landlords are enjoying high occupancy rates amid the growing population in the emirate.

Real estate industry executives, however, say landlords are willing to spread the rent over multiple cheques though this often results in the tenant paying a higher overall rental price.

Rents have been consistently rising at a double-digit rate in most areas in Dubai over the past few years due to higher demand from the increased population. In addition, developers suspended work on various projects during the pandemic year that led to a slowdown in the supply market.

Jacob Bramsley, leasing manager at Betterhomes, said it is now rare to see incentives such as one month of free rent or a grace period allowing tenants to move into a property slightly earlier without paying rent.

“Due to high occupancy rates, there isn’t as much pressure on landlords to offer such incentives. We are still observing many contracts with multiple cheques, which tends to be where we find more flexibility from our owners, compared to incentives or pricing,” he said.

Paul Kelly, operations director at Allsopp & Allsopp Group, said there are definitely a lot fewer incentives than in 2020 simply as landlords don’t need to. “We can all see how busy Dubai is at the moment, we all know the increasing population and record visitor numbers, it isn’t a market where landlords need to offer an incentive.”

Shortage of houses

The emirate’s population reached 3.65 million in 2023, growing by 100,000 over previous year, due to the inflow of foreign workers, professionals and investors in the post-pandemic period.

Echoing his industry peers, Alois Kugendran, general manager for real estate at Huspy, said incentives like rent-free months are hardly on offer now.

“Population growth has been a primary driver of demand, leading to a shortage of available homes. This has created a market that heavily favours landlords, with limited availability making it difficult for tenants to secure a property. This is a very different scenario compared to 2-3 years ago. Recently, we’ve seen occupancy rates continue to rise despite higher rental prices and a significant reduction in the number of incentives on offer,” he said.

Alina Adamco, head of sales at Metropolitan Homes, said in these established situations, landlords typically don’t need to offer incentives for renewal, though mutually agreeable terms are always an option.

“New buildings are a different scenario’:

An immediate oversupply and competition with neighbouring properties creates opportunities for tenants to secure better deals. Landlords may offer incentives like 12-month rent payment plans, included utilities, or even a free month’s rent to attract tenants. However, the decision to offer these incentives rests solely with the landlord.

Some landlords may choose to keep the property vacant for a short period rather than accept lower rents or extended payment plans,” she added.

Attracting long-term tenants

According to Karun Luthra, vice-president for global operations, Foremen Fiefdom, high occupancy and rising rents give landlords the upper hand in Dubai. Hence, traditional incentives like free rent might become less common, as landlords shift towards attracting long-term tenants and emphasising property quality. They are focusing on the value of their buildings and amenities rather than offering discounts.

“A smaller number of landlords are offering rent-free months, fewer checks and other incentives now, especially in areas with high occupancy rates. The competitive nature of these areas means that landlords can rely more on the appeal of their properties and amenities to attract tenants, rather than additional incentives,” he said, adding that in areas with high supply and lower demand, landlords may still use incentives to entice tenants.

“Overall, the trend indicates a decrease in the use of incentives as landlords leverage high occupancy rates to maintain rental prices and improve returns,” added Luthra.

More cheques but higher prices

In some cases, landlords are happy to help tenants spread the rent over multiple cheques.

“In this market, tenants are often competing to secure their ideal property and landlords have increasingly been able to find tenants who are willing to pay in just one or two cheques. That said, we are also seeing some landlords working with third-party platforms who pay the rent upfront, and then collect monthly from tenants. This creates more flexibility for tenants and a win-win situation for all parties,” Alois Kugendran said.

Jacob Bramsley added that landlords appear to be more interested in securing a higher price and more cheques, thus increasing their overall return on any investment.

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