Does Dubai need a three-year rent freeze?

As the residential market continues to soften, the addition of new units has put further pressure on sales and rental prices in Dubai. According to Ozan Demir, director of operations and research at Reidin, while sales prices have fallen by 8 per cent, rental prices have dropped by 11 per cent when compared to the same term last year. In the villa segment, sales and rental prices have dropped by 8 per cent and 5 per cent respectively.

“Increasing handovers have continued to affect prices in most locations across Dubai as investors and tenants now have more choices,” explains Demir. “Areas with high handovers have recorded the highest decline in prices. While the upcoming supply in the Dubai real estate market is expected to put further pressure, the decrease in prices has opened new opportunities for investors, end users and tenants.”

The rate of decline is driven by various factors, but primarily the availability of competing stock, says Manika Dhama, head of strategic consulting and research at Cavendish Maxwell. “Overall, new supply is driving competition and tenants are, as a result, in a stronger position to negotiate rental terms in most cases. Landlords are also becoming more flexible with payment options and offering incentives to retain existing tenants and attract new ones.”

This is probably the best time for renters to upgrade their lifestyle, says Jeevan D’Mello, international community management expert and senior lecturer at the Dubai Real Estate Institute.

“Declining rents does put pressure on the cash flow of property investors, but it is prudent to look at the economy in general and high property prices are not really what is in the best interest of a growing city,” says D’Mello. “Reasonable prices attract purchasers and with all that Dubai has to offer, the city is becoming much more attractive for foreign investors. For long-term sustainability a reasonable rental price point is essential.”

Three-year rent freeze

In the midst of all this, the Dubai Land Department has recently revealed that it is considering proposal to introduce a provision that will lock the rent for three years. While the proposal is under review with the authorities, Property Weekly spoke to property owners, tenants and property brokers about their views on it.

1. Guarantees ROI value

“Securing the rent for three years can actually favour landlords in a market where rents are declining due to new inventory,” says Khurram Adam, a landlord from Pakistan. Adam owns a two-bedroom apartment in Tecom and a studio in Jumeirah Village Triangle. Freezing rents will allow landlords to have guaranteed returns for at least three years, he adds.

Another landlord, Dhruv Thakkar from India, who owns multiple studios in Jumeirah Lakes Tower, agrees noting that a tenant’s commitment to the property for three years will be good for landlords in a fluctuating market. “So if the property owner is able to get a fixed rate for three years, it’s good and secures his income is for the next three years,” says Thakkar.

2. Helps in budgeting

A rent freeze will help in long-term budgeting for salaried tenants, says Pakistani tenant Syed Abbas, who rents a one-bedroom apartment near Dubai Airport International Airport. “Now the trend is to hunt a different unit every year to take advantage of market changes,” says Abbas. “But while doing so we lose money on movers and incur other relocation costs. So we can save on such additional expenses if we are tied to an apartment for three years. We can budget ourselves adequately when we finalise the apartment.”

3. Good for new tenants

“This is a good idea,” says Indonesian Yoan Joice Beatrix, who rents a one-bedroom apartment in Nadd Al Hammar. “New tenants can really benefit from the regulation. It is vital to have a law binding the landlord not to increase the rent for their own benefits.”

4. Currently not needed

While there still no clarity on the matter, Rajiv Ghanekar, a senior real estate broker with Keller Williams Real Estate, says it may not be urgently needed by the market.

“I reckon the authorities will study the economic impact of a three-year rent freeze and perhaps fine-tune the process — only to have it implemented when the market demands,” says Ghanekar. “I don’t see a real need for a three-year rent freeze at least on the residential side of the market. Moreover, the Rental index calculator provides a fair answer to the question of rent hike/revision. At present, landlords and tenants are mutually negotiating and agreeing upon flexible and unique win-win solutions, so this is really not needed now.”

5. Brings consistent cash flow

Suraj Rajshekar, general manager of Rocky Real Estate, is supportive of the no-increase proposal.

“I believe this is an excellent decision, which will be overall beneficial to everyone,” says Rajshekar. “It will let families live in the property for a longer period, budget their finances and not be afraid about the annual rental increase that generally affects their lifestyle. Hence, it brings stability, sense of belonging and adds to the comfort of the people staying in the country. It also helps the landlords because it will bring them consistent cash flow and saves them the cost of finding a new tenant.”

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Collected and published by Arms &McGregor International Realty® editorial team. Get in touch with us at [email protected]