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Monday, May 26, 2008
A new house rent index that will suggest benchmark rents for all the communities in Dubai, to be published soon by Dubai's Real Estate Regulatory Authority (Rera), is expected to reverse the gains of a seven per cent rent cap and turn the tables against the tenants in favour of the landlords.
The index will have separate prices for studio, one-, two- and three-bedroom apartments and villas in each community that will help landlords and tenants to benchmark their rents against the published rents in case of a dispute. It will also help the Rent Committee to settle the disputes.
"We are looking at a lot of factors. The index is a guideline for new people who are coming to Dubai," Rera chief executive Marwan Bin Galita told the media on Sunday.
It is hoped the pricing index will act as a comprehensive guideline to all tenants and landlords in Dubai. "The index will be introduced when we're confident that it's going to help the market," Bin Galita said.
By 2009, all new properties and rental contracts for commercial and residential units will be incorporated into a full database of rental agreements in Dubai, he said.
The new rent pricing index, designed to ensure that new people moving to Dubai have a clear picture of how much property is in specific areas, will help the market, he said.
Rising rents, jumping between 50 to 100 per cent over the last few years, have prompted Dubai Government to introduce a 15 per cent rent cap in 2005 - which was lowered to seven per cent - to help the emirate's marginalised middle income group.
The rent cap, which managed to stabilise the market to a certain degree, has come under fresh attack with landlords, who were trying innovative ways to bypass it, complaining that they are forced to rent out premises below the market price.
Elaine Jones, chief executive officer of Dubai-based property consultancy group Asteco, said, "It's a huge subject. There is so much disparity in the market now. Some tenants are paying more than double what other tenants are paying within the same building."
Growing fears
Analysts fear the new rent index will be used by the landlords as an excuse to bypass the rent cap. "This will provide another excuse to the landlords to bypass the rent cap," said a property analyst, requesting anonymity. "They have tried all tricks in the past. The rent index will provide the necessary tool for them to try and violate it."
Meanwhile, Bin Galita said there is enough housing supply in the Dubai market but the land is being held by greedy investors and real estate agents.
"There is enough supply in the Dubai market but because of greedy real estate agents or greedy investors, they are keeping the ground," he said.
"New projects are coming so people won't be able to leave their houses empty for a long time once the index is in place," he added.
The index will have separate prices for studio, one-, two- and three-bedroom apartments and villas in each community that will help landlords and tenants to benchmark their rents against the published rents in case of a dispute. It will also help the Rent Committee to settle the disputes.
"We are looking at a lot of factors. The index is a guideline for new people who are coming to Dubai," Rera chief executive Marwan Bin Galita told the media on Sunday.
It is hoped the pricing index will act as a comprehensive guideline to all tenants and landlords in Dubai. "The index will be introduced when we're confident that it's going to help the market," Bin Galita said.
By 2009, all new properties and rental contracts for commercial and residential units will be incorporated into a full database of rental agreements in Dubai, he said.
The new rent pricing index, designed to ensure that new people moving to Dubai have a clear picture of how much property is in specific areas, will help the market, he said.
Rising rents, jumping between 50 to 100 per cent over the last few years, have prompted Dubai Government to introduce a 15 per cent rent cap in 2005 - which was lowered to seven per cent - to help the emirate's marginalised middle income group.
The rent cap, which managed to stabilise the market to a certain degree, has come under fresh attack with landlords, who were trying innovative ways to bypass it, complaining that they are forced to rent out premises below the market price.
Elaine Jones, chief executive officer of Dubai-based property consultancy group Asteco, said, "It's a huge subject. There is so much disparity in the market now. Some tenants are paying more than double what other tenants are paying within the same building."
Growing fears
Analysts fear the new rent index will be used by the landlords as an excuse to bypass the rent cap. "This will provide another excuse to the landlords to bypass the rent cap," said a property analyst, requesting anonymity. "They have tried all tricks in the past. The rent index will provide the necessary tool for them to try and violate it."
Meanwhile, Bin Galita said there is enough housing supply in the Dubai market but the land is being held by greedy investors and real estate agents.
"There is enough supply in the Dubai market but because of greedy real estate agents or greedy investors, they are keeping the ground," he said.
"New projects are coming so people won't be able to leave their houses empty for a long time once the index is in place," he added.
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Despite recent reports that the Dubai rental market is reaching a plateau, prices are continuing to rise across the board as demand in the city far outstrips supply. The continuing influx of new arrivals, estimated at 400,000 per year, combined with delays in project handovers, means that landlords and developers can still make very healthy returns.
Dubai rental increase 'slow downs' are due to less movement by sitting tenants
In an interview with AME Info, Marcus Arbourne, Head of Research, Consultancy and Evaluation at Asteco, talked through the company's report on how Dubai rent increases had slowed down.
The report was compiled using Asteco's internal database from their sales and leasing operations in Dubai.
Arbourne says that the average increase still hovers at the 22% mark, although previous annual increases have been higher.
The 'decrease' in rental cost increases he attributes to the effects of the rent cap and Rent Committee being felt on the market.
Whereas tenants would previously have moved from one building to another, many are now realising the financial benefits of staying in their current apartment or villa.
The Kershaw Leonard UAE Cost of Living Report results would show that this is a sound economic decision.
Double-digit percentage rental increase
Every community in Dubai, and every type of accommodation within these areas, has shown double-digit percentage increases in rental costs.
For newcomers, or those looking to move, the divergence in cost between current pricing and that being paid by sitting tenants is enormous.
Tenancies on studios in the Greens now cost between Dhs85,000 and Dhs90,000, while one bedroom apartments cost from Dhs110,000 to Dhs140,000 - an increase of 25% and 35% respectively on 2007 prices.
The annual price of a four bedroom villa in the Arabian Ranches development now stands between Dhs300,000 and Dhs350,000, while a five bedroom villa can fetch up to Dhs450,000 - a 44% and 34% increase.
Arbourne also notes that landlords are now sticking more closely to the regulations laid down by the Rent Committee, meaning that sitting tenants cannot be evicted without due process simply to charge someone else more.
Though many people are indeed taking the plunge and buying their own property, the majority of these are buying offplan. This means that there is still a waiting period of a number of years before current investors leave the rental circuit.
Increases depend on location
Areas that have shown a marked increase, such as Al Ghusais, where rental costs have gone up 40% in the past 12 months, have done so because they have come from a lower market value to catch up with other communities.
These still remain some way behind areas such as the newly completed Trade Centre Residences on the Sheikh Zayed Road, where three bedroom apartments can be expected to fetch up to Dhs750,000 at the top end.
Similarly the Kershaw Leonard report notes that other new high end areas, such as the Burj Residences have gone up an average of 42% for a two bedroom apartment, and 57% for a three bedroom flat.
A three bedroom villa in the same area will now fetch over 67% more than it would have a year ago.
New units coming on to the market will still see significant growth as developers and landlords will be able to charge market rates without being held back by historical rent caps.
The same goes for new developments in older areas, which serve to raise the price band of all the community's properties. As an example, the cost of renting a four bedroom villa in Mirdif has soared 77% in the past 12 months, driven in part by the Uptown development.