Bahrain
Kuwait
Oman
Qatar
Saudi Arabia
UAE
Print
Email
Discuss this article (16 Comments)How low will they go?
by This email address is being protected from spam bots, you need Javascript enabled to view it on Friday, 06 February 2009
The shift in power in Dubai's real estate rental market has been staggering over the past six months but it is the next six months that will help shape the future of the market in the emirate for years to come.
The recent announcement by the Real Estate Regulatory Agency (RERA) that a new rental index will be produced within three months should be heralded as the start of a new era for all involved in the industry.
Before I go on, I should declare a personal interest. Like many thousands of other expats living in Dubai I rent an apartment.
Related: 2009 rental index prices revealed
And like many thousands who signed their agreement with their landlord at the height of the rental boom in 2008, I am paying over the odds for my home.
Nice as it is, even RERA's 2008 rental index figures tell me I am paying up to 25,000 dirhams a year more than I should.
Prices in mid-2008 were out of control and, despite early denials by industry figures, it is now widely accepted that a major price correction was the only solution to the increasingly fractious rental market.
The mantra of short-term pain for long-term gain has never been truer for landlords operating in the emirate during this unprecedented economic slowdown.
They must now accept that demanding 190,000 dirhams a year for a two-bed apartment in The Greens is unsustainable and that a new compromise has to be reached.
And they must also acknowledge that the days of one or even two cheque payments are over. Flexibility must become the name of the game or else large swathes of properties across Dubai will remain empty.
All tenants accept that a landlord needs to make money on his or her investment but the bargaining power in negotiations has now clearly moved.
That's why RERA's statement is so important. The watchdog for the industry has recognised its error in taking last year's rental values as a guide for landlords in 2009.
While this is only the first step, it is a huge one for tenants and landlords and signals a new reality creeping back into the real estate sector which seemed to operate on fantasy figures for so long.
So what will happen next? All eyes (including mine) will be on RERA's new update to the rental index. Just how low will they go with the new rental values?
An Arabian Business article earlier this week quoted agents saying rental costs had fallen by a third in just two months. Will this sort of fall be reflected by the index?
There are still lots of questions that need to be answered before the direction of the rental market in Dubai becomes clearer.
But one question I am now looking forward to posing this summer is this one to my landlord - How much are you going to cut my rent by this year and 12 cheques is ok, isn't it?
READERS' COMMENTS
Disclaimer: The views expressed here by our readers are not necessarily shared by ArabianBusiness.com or its employees.
The Index
Posted by Erik Voorhees, Dubai, UAE on Thursday 19 February 2009 at 12:19 UAE time
I hope everyone remembers that the rental index is just an "index." It is not a law. Landlords and tenants will always negotiate prices, and the index is a good way to start that negotiation. Supply and demand will (and should) always be the proper determinant of prices.
Posted by Erik Voorhees, Dubai, UAE on Thursday 19 February 2009 at 12:19 UAE time
I hope everyone remembers that the rental index is just an "index." It is not a law. Landlords and tenants will always negotiate prices, and the index is a good way to start that negotiation. Supply and demand will (and should) always be the proper determinant of prices.
How does this help me?
Posted by Rainigade, Dubai, UAE on Tuesday 10 February 2009 at 11:00 UAE time
As a common man on the street, I really dont see how this index helps me any.
Most of us have already signed a contract for 2009 at inflated prices. The RERA guys themselves said that their index could not be imposed and was just "a guide". My landlord took great pleasure in pointing that out to me. He was also very quick in asking me to find alternative accommodation if I didn't like what he offered.
With RERA's new and improved index coming out - how does it help me?
Is my landlord going to reduce the rent I've already contractually agreed to pay, just coz the new index shows he's charging too much? I think not!
Is my landlord going to change the rental prices from henceforth, for new tenants, considering there's no law enforcing it? I think not!
Is my landlord going to offer me a higher number of cheques for the same amount I'm paying now (even though I should be paying less)? I think not!
Is the index taking into consideration that the swimming pool in my building is always leaking, being fixed, dirty and has two lounge chairs by it? Or that the so called sauna room was never ever operational from day one? I think not!
Is the index considering that there aren't enough parking spots for all apartments in the building and that Dubai Municipality have dug up the whole area surrounding us (if its not already blocked off by new construction areas), so we have nowhere to park and get fined by Dubai Police for parking illegally? I think NOT!
So how in God's wide world does RERA's new and improved index help me?? I guess I just have to wait until 2010, when my new contract is due and hope that prices have stabilised by then.
Posted by Rainigade, Dubai, UAE on Tuesday 10 February 2009 at 11:00 UAE time
As a common man on the street, I really dont see how this index helps me any.
Most of us have already signed a contract for 2009 at inflated prices. The RERA guys themselves said that their index could not be imposed and was just "a guide". My landlord took great pleasure in pointing that out to me. He was also very quick in asking me to find alternative accommodation if I didn't like what he offered.
With RERA's new and improved index coming out - how does it help me?
Is my landlord going to reduce the rent I've already contractually agreed to pay, just coz the new index shows he's charging too much? I think not!
Is my landlord going to change the rental prices from henceforth, for new tenants, considering there's no law enforcing it? I think not!
Is my landlord going to offer me a higher number of cheques for the same amount I'm paying now (even though I should be paying less)? I think not!
Is the index taking into consideration that the swimming pool in my building is always leaking, being fixed, dirty and has two lounge chairs by it? Or that the so called sauna room was never ever operational from day one? I think not!
Is the index considering that there aren't enough parking spots for all apartments in the building and that Dubai Municipality have dug up the whole area surrounding us (if its not already blocked off by new construction areas), so we have nowhere to park and get fined by Dubai Police for parking illegally? I think NOT!
So how in God's wide world does RERA's new and improved index help me?? I guess I just have to wait until 2010, when my new contract is due and hope that prices have stabilised by then.
Don't Hold Your Breath!
Posted by Usamabc, Vancouver, Canada on Monday 9 February 2009 at 23:26 UAE time
Let's not forget that the powers that be have a problem acknowledging the drop cause all of them are in fact property investors! I'm not saying that the rents will not go down but don't hold your breath waiting for a "reasonable" reflection of rental prices cause that won't come. My guess, the index prices will be at least 15-20% higher than the real market prices but the tides have changed, that's for sure.
Having said all that, with the school summer breaks around the corner, I think a lot of "families" will be leaving Dubai and then it will be interesting to see how much longer the current rental prices will hold and how long property investors can keep their properties vacant without any earned income from them. I think that would be the reality check for most of the investors considering that the number of jobs lost in Dubai nowadays is more than the ones created.
Posted by Usamabc, Vancouver, Canada on Monday 9 February 2009 at 23:26 UAE time
Let's not forget that the powers that be have a problem acknowledging the drop cause all of them are in fact property investors! I'm not saying that the rents will not go down but don't hold your breath waiting for a "reasonable" reflection of rental prices cause that won't come. My guess, the index prices will be at least 15-20% higher than the real market prices but the tides have changed, that's for sure.
Having said all that, with the school summer breaks around the corner, I think a lot of "families" will be leaving Dubai and then it will be interesting to see how much longer the current rental prices will hold and how long property investors can keep their properties vacant without any earned income from them. I think that would be the reality check for most of the investors considering that the number of jobs lost in Dubai nowadays is more than the ones created.
Smart Strategy
Posted by HR on Monday 9 February 2009 at 11:22 UAE time
Dec 2008 - Jan 2009 is usually the time when all contracts go for enewal. RERA coming up the BIG plan of implementing the index in Feb will definitely not be a solution and has not been a solution. Everything is done and dusted still leaving holes in one’s pocket. Also no landloard is agreeing to apply to these index, and are bluntly saying sorry on one's face saying take it or leave it we dont reconize these rules.
Posted by HR on Monday 9 February 2009 at 11:22 UAE time
Dec 2008 - Jan 2009 is usually the time when all contracts go for enewal. RERA coming up the BIG plan of implementing the index in Feb will definitely not be a solution and has not been a solution. Everything is done and dusted still leaving holes in one’s pocket. Also no landloard is agreeing to apply to these index, and are bluntly saying sorry on one's face saying take it or leave it we dont reconize these rules.
Mobile
