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First rent hike in years for many tenants in Dubai 03-06-2021


For the first time in five years, Dubai's property market and its tenants are starting to hear talk about rent increases. But the Law places restrictions on how much landlords can demand.

Dubai: Residents in Dubai faced with a sudden rent hike demand shouldn’t panic – they should first check the RERA Rent Index to see if the landlord is justified in asking for an increase.

“Landlords may increase the rent only to levels as prescribed by the Law and based on the requirements set by RERA (Real Estate Regulatory Agency),” said Shishira Johny, Corporate and Commercial Associate at the law firm TLG.

For instance, if the current rent being paid is 21-30 per cent lower than the average in a particular community or neighborhood, the landlord is within his rights to ask for an increase of up to 10 per cent on renewal. If the existing rent is 31-40 per cent lower than prevailing rates, the proposed hike can go up to 15 per cent.

For now, the RERA Rent Index is still the best benchmark for tenants to make sure they are not facing unjustifiable demands. Now, the Index provides a “broad” average of rents within some of Dubai popular and emerging neighborhoods. In the last four years, the Index hasn’t been a central factor because of the steady decline in rents, with 2020 seeing drops of more than 10 per cent in some areas.

But with Dubai’s property market starting to see more action, at some point this would reflect on rents too. Which is why the Index is again likely to figure prominently.
 

What does RERA RENT INDEX say about your area?

  • If the rent of the real property unit is up to 10% less than the average rental value of similar units, the landlord shall not increase the rent;
  • If the rent of the real property unit is 11-20% less than the average of similar units, the landlord may increase the rent maximum by 5%;
  • If the rent of the real property unit is 21-30% less than the average of similar units, the landlord may increase the rent maximum by 10%;
  • If the rent of the real property unit is 31-40% less than the average of similar units, the landlord may increase the rent maximum by 15%; and
  • If the rent of the real property unit is less than the average of similar units by more than 40%, the landlord may increase the rent maximum by 5%.

Are rents firming up?

Tenants in some of the upscale neighborhoods of Dubai – the Marina, Downtown and Business Bay – are once again hearing talk about likely increases when their next contracts are due. Some buildings within these areas have definitely seen increases or demand for a hike, especially for duplex and three-bedroom units.

Some tenants have reported being asked to pay 20-25 per cent more than they are right now… even though those areas are yet to see any increases on the RERA Rent Index.

Even then, tenants have other rights they can exercise. “In case the landlord wants to increase, he will have to serve sufficient notice,” said Prathyusha Gurappu, Head of Research and Advisory at the property consultancy Core. “The notice period has to be no less than 90 days before the date on which the lease expires.

“Most of the established villa districts in Dubai are already seeing rent stabilization… or rent recovery.”

Landlords may increase the rent only on the levels as prescribed by the law and based on the requirements set by RERA.

Filter down

That’s the point – so far, rent increases, if any, are confined to upscale neighborhoods and buildings. According to market sources, this is mostly driven by existing tenants wanting to move to bigger premises or neighborhoods with more open spaces and amenities.

But at some point, rents in the rest of the city could stabilize… or make their first increases since 2016. “This will be when the job market sees a full revival and where new positions are created,” said an industry source. “So far, that’s not the case. Local businesses and organizations are still by and large intent on saving costs.”

Article by:


Shishira Johny
Corporate & Commercial associate
 

Source: Gulf News