Russian influx drives up rental prices in Dubai

The months of February and March were tense for Aretha Pretorius.

For weeks, she and her husband Chris went around Dubai desperately looking for a new house.

They have lived in their three-bedroom villa located in the centre of the city since 2019. But last year the family received an eviction notice from their landlord saying he wouldn't be renewing the lease when it ended in March because he planned to move into the house himself.

They started their hunt by checking out properties in the same community but were shocked to discover that annual house rents were 75% higher than the $34,000 (£28,000) they had been paying.

They widened their search by scouting out houses in other areas across the city but failed to find a villa within a reasonable budget.

Finally, they signed up for a house that is substantially smaller than their current place and located a long way from the city centre but will cost them $44,000 - almost 30% more than the rent they've been paying.

''For weeks we went around like crazy people looking for a house. Eventually, we had no choice but to compromise. Now we will have to live in a smaller house and pay more," Aretha says.

Aretha and Chris's new home will be their fifth since they moved to Dubai from South Africa in 2011. Dubai's real estate market has been through various cycles in the last decade, but Aretha says they've never before struggled to find a house like they did this time.

"Rents were quite high even 10 years ago but even then, it wasn't as difficult to find a house as it was this time," she says.

It's not just people looking for villas who are facing challenges. Rents have gone up across all segments including apartments. Skyrocketing rental costs are worsening a cost-of-living squeeze for the expatriates who are the backbone of the country's economy. Nearly 90% of the UAE's roughly 10 million inhabitants are foreign nationals.

The current demand in the market has priced out some renters like Waquar Ansari, forcing them to move from Dubai to the neighbouring Emirate of Sharjah, where rents are lower.

Waquar and his family were staying in a one-bedroom apartment in South Dubai paying $9,500 (£7,750) annually. When his lease was about to expire last month, the owner wanted to raise the rent by about $3,000. He initially searched for a new apartment in the same locality, but rents had gone up by more than 40%.

"I was willing to pay 10-15% more, so I checked out some other localities in Dubai as well but couldn't find any decent apartment in that price range. The only option was to move to Sharjah," he says.

In the current market, demand is outstripping supply, according to Betterhomes' group managing director Richard Waind, who is based in Dubai.

"There are far more people coming into Dubai compared to the properties that are available in the areas they want to live in. There is a lack of supply in the market that is driving up rents,'' he says.

In Dubai anti-price-gouging laws - increasing the price to unfair levels - allow landlords to increase the rent for existing tenants by a maximum of 20%. Landlords can't evict tenants without good reason either.

However, many tenants, who didn't want to be named, told the BBC they had received eviction notices from landlords who said they wanted to move into the apartment themselves. But those tenants claimed this was just a pretext and the landlords really wanted to re-let the apartments at a higher price.

But it is not just rentals that have touched record highs - the price of buying a property has gone up substantially as well.

Apartment prices were up 35% in 2022 compared with 2020, the peak of the pandemic, while villa prices have gone up by more than 50% during the same period, according to real estate agency Savills.

Russian cash has been the biggest factor driving up demand for real estate, both in terms of buying and leasing, since the outbreak of the Ukraine war last year, according to Katie Burnell, associate director at Savills Middle East, based in Dubai.

It has emerged as a haven for wealthy Russians including oligarchs, billionaires and start-up founders. Many young Russian nationals have also moved to the glitzy city looking for new employment opportunities.

Overall Russians were the biggest international investors in Dubai real estate last year.

"There are a lot of restrictions on Russians on where they can reside or buy property. They face no such problems in the UAE. Here they have been able to do business and operate financially," says Ms Burnell.

"Because of this convenience, they are really not focusing on the price point in the property market and are willing to pay the price."

There is no report that spells out the precise figures, but it is estimated that hundreds of thousands of people have left Russia since the war started.

According to one report by Forbes Russia, 700,000 Russian nationals have left the country since President Putin ordered partial mobilisation, or call-up to military service, in September last year. The Kremlin has denied the figures reported in the article.

The UAE has adopted a neutral stance since the start of the Ukraine conflict. It did not put sanctions on Russia or criticise its invasion of Ukraine. It is providing visas to non-sanctioned Russians, while many Western countries have restricted them.

Last month, the UAE Central Bank also issued a licence to Russia's MTS bank to start operations. Russian nationals had been facing difficulties opening bank accounts in the UAE and transferring money there due to Western sanctions on many Russian banks.

Since the pandemic the UAE has introduced several new long-term visa options, eliminating the need to have a sponsor - which helped attract an enormous wave of investors, remote workers and entrepreneurs into the country, creating more job opportunities.

The country's handling of the pandemic also played a key role in enhancing its appeal and attracting investors from various countries. Dubai opened tourism and eased restrictions in 2020, while most countries in Europe were still under lockdown.

Dubai registered more than 86,000 residential sales transactions last year, surpassing a previous record of 80,000 in 2009.

About $56.6bn worth of property was sold last year, almost 80% more than in 2021.

Richard Waind says global events over the last three years, including the pandemic and the war in Ukraine, have enhanced Dubai's appeal as a major financial hub, pushing up the domestic real estate market.

"Dubai offers security, safety, lifestyle and the ease of doing business. This is a big factor why people from so many countries are migrating here for opportunities"

Over the past year, real estate developers have announced several new projects to capitalise on the increase in demand. However, Mr Waind expects rents to remain high for at least another 18-24 months before new residential units start coming onto the market in large numbers to ease the pressure on supply.

There are concerns that if rents continue to rise then many tenants will be priced out leading to many people moving out of Dubai to other cities in the UAE.

"Yes, that is a high possibility, which is why it's important that rents start to come down sooner rather than later," Mr Waind says.