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The rent nightmare
I'm a superstitious person. I don't believe in counting my chickens before they've hatched.
Or in making major financial commitments when I don't know what's around the corner.
Which is why I find living in Dubai so difficult. Paying for up to a year's rent in advance on my flat goes completely against my principles.
Everytime I have to hand over that cheque I feel a lump in my throat.
But unfortunately in this part of the world tenants have no choice but to make these heavy financial commitments on an annual or bi-annual basis.
In very few other countries in the world do landlords expect rent to be paid so far in advance and it is a requirement that be financially crippling for tenants.
It is almost impossible for anybody living and working in the emirate to do this without taking out some sort of bank loan, going into overdraft or pushing their credit cards to their maximum limit.
I am in two minds about why this system exists in Dubai. On the one hand it the sign of an immature market where crude unsophisticated methods are used by landlords to ensure they are guaranteed money in their pockets.
It is also a sign of lack of trust. The UAE's population is, after all, a highly transient one where many residents have the intention of one day returning to their home countries.
Landlords, probably rightly so, are very concerned about the possibility that tenants will up sticks and leave without paying off their rent.
On the other hand the practice is playing a big part in the growth of the region's banks and financial institutions, which have benefited hugely from the number of expatriates applying to them for personal loans and credit cards.
Given this there is every chance that financial institutions have helped to perpetuate the practice.
It's no secret that it is not difficult to get a loan or a credit card in Dubai.
To date the absence of a credit checking bureau in the UAE has meant that no matter how many existing debts and financial commitments you already have, you can pile on more simply by applying for another loan from the bank and they have no accurate way of checking your credit history.
However, there has been much talk of a federal credit bureau being introduced in the UAE - a practice that would make it far more difficult to apply for loans.
I wonder whether, if that happens, many tenants would simply not be able to honour the requirements of their landlords for advance rent and landlords would therefore be forced to end the practice.
All this assumes that the presence of a credit-checking bureau would stop banks from dishing out loans to expatriates so freely.
What must not be forgotten however, is the fact that to some extent the current very liberal credit system suits banks down to ground.
After all, why would they want to have to turn loan customers away - when they could be earning bucket loads of interest from them?
What all this boils down to is that banks and landlords feed off each other to perpetuate a situation that is costly and inconvenient for tenants. But the shortage of property in the market means tenants put up with it.
And as I sign away another year's worth of money to my landlord it is a situation that I hope will change soon.
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Comments 1-7 of 7
Posted by Zaka Ullah Khan, Faisalabad, Pakistan on 3 January 2008 at 14:11 UAE time
Offer your landlord a monthly premium rent (one month in advance) and see if it works with him. Take a bank loan for the extra amount only and go for a three years return payment plan, while investing the remaining amount. Do this and you should break even.
Posted by Louie Tedesco, Dubai, UAE on 3 January 2008 at 11:29 UAE time
The complaints against Landlords or Agents who demand annual rental payments are unfounded. This situation has gone on since expats began working in this region and they merrily went along with such outrageous behaviour rather than stopping it early on. Earlier generations of expats in the GCC enjoyed the golden years- large salaries commensurate with living costs which provided for a nice nest egg or disposable income, free healthcare, schooling, housing and often free private club memberships. Few fees, tolls and other charges existed then, which now in 2008 add up to a substantial hidden income tax. In the eyes of the Landlords and Agents, these golden years still exist - but now it's their turn, you've had your go. If you were in their place and could legally coerce your tenants for up-front payments to which they meekly complied, would you not do the same? Would you rather rent your property to someone who may or may not pay every month, or do you prefer having it all at once to deposit in your account and to earn even more by drawing interest?
Migratory workers -that's your legal status whether you're a labourer or a CEO- are here to earn their keep, to invest or spend their earnings here and not to send money home. If you were working in your home country the earnings would be spent or invested there and most likely not sent to a country outside of your own. In the absence of any positive fiscal benefit, why should any GCC Government support a change in their traditions, in established procedures or to even change the law to help accommodate expat foreigners remit earnings to their home countries? Do you really think you're so important to the leadership to cause them sleepless nights, or is it you having the problems sleeping due to your overwhelming bills and debt?
If you are using your credit card or bank loans for advances on your annual rent payment, maybe it's time to move on or to reassess why you're even here. What if you're laid off tomorrow? Injured or hospitalized? Will your bank have sympathy when they come to collect their outstanding balance or will they cash your security checks and file a case? Sounds harsh, but it's reality. And reality in 2008 is getting harsher, not softer.
Posted by T Crowe, Fayetteville AR, USA on 2 January 2008 at 20:11 UAE time
When individuals are burdened with high cost of living it insures high debt which creates several undesirable situations for the majority of citizens within a society and great profits for a powerful minority. First, people living "pay check to pay check" insures that you will have workers. They are trapped in a "hand to mouth" existence in which case they fear missing work because they will be unable to sustain their life and pay their bills. Second, these marginal individuals who are barely "afloat" will usually have overdrafts at the bank and have high balances on their credit cards. Banks make a large portion of their profits from overdraft charges and late fees on credit cards. Banks and credit card companies are "predatory lenders" they seek out people with just enough income to qualify. These companies then give their new customers a "taste of credit" (much like a drug pusher gives a taste of cocaine or heroine).The credit limits and interest rates are high enough to insure that most consumers will only be able to pay the minimum payment. If this payment is missed the interest rate is raised even higher creating "the cycle of debt". These unethical practices are damaging to the economic wellbeing for the majority of citizens however, the very wealthy appear to be untouched awash in profits. "Those with power exploit those without power" "predatory lending" and the "cycle of debt" are excellent examples of Conflict theory.
Posted by Leo, Dubai, United Arab Emirates on 2 January 2008 at 17:37 UAE time
I agree wholly with the tone of this article. Only things missing are the words "greed", "avarice" and possibly "blood suckers."
This unfortunately does not solely apply to individual landlords but long established real estate companies who will sink to any lengths to inflict in excess of 30% increases in rent if they can get away with it. Thank goodness that Sheikh Mohammed has limited the increases and once again shown the compassion and wisdom that is as rare as rocking horse... in the banking and real estate sectors. It used to be lawyers that were so utterly reviled in the past but they have now been superceded by the two sectors which have rocketed past them in the most detested profession.
Posted by Samer Srouji, Dubai, UAE on 2 January 2008 at 16:18 UAE time
Thanks Anil. I realized recently it might not be the landlords but the management companies. I am in a shared 3 BR flat and in my building people pay rent with 1 cheque annually. This year as we had one room unrented for 3 months, we didn't pay any rent following contract renewal. The management company kept pestering us for 3 months and eventually asked that we pay 2 months rent, which would satisfy the landlord. As 2 tenants, we were able to come up with the cash to cover that. It appears that the management company is insisting on collecting 1 year advance rent, but is paying the landlord on a monthly basis. The question is, what do they do with all that money before releasing it to the landlord in installments? We desperately need legislation in this country to protect tenants and to regulate how rent is collected.
Posted by GB, Dubai, UAE on 2 January 2008 at 15:43 UAE time
One leading bank has a new loan scheme "My Friend Loan" - must be the sister of "My Cousin Credit Card" who both are very closely related to "My Enemy Debt".
How can one come up with such a ridiculous slogan! If it wasn't for people having to bend over backwards to pay in advance for a roof over their head and the scrupulous rent practices, not many people would need a friend like that. Friend in need is a friend indeed? There a stories of young men in prison because od loans way over their head as it all looked so easy!
Posted by Fred, Dubai, UAE on 2 January 2008 at 15:36 UAE time
Very well put and true to the point, to add my ten penny's worth:
Landlords should apply for a license to rent which sticks to the property not the owner. This could include safety checks and suitability. Should a landlord wish to terminate a rent license then there should be a minimum of 2 years before the same property can be rented again. This would go in hand with the Dubai municipality rent caps and avoid the present loop hole of landlords declaring the property to be handed back to his family when we know in most cases is an excuse to remove a long sitting tenant at previously capped prices and release the property for renting again at the high demanding market rates.
This would offer some control in rent prices and help Dubai curb an ever increasing inflation rate caused mainly by the housing market.
Comments welcome.