Why is the Land Department simply adding fuel to the fire?

Why Sultan Bin Mejren's comments that Dubai home prices may rise by up to 40% could be bad news for tenants

For anyone who’s either planning or being forced to move house in Dubai this year, the recent comments made by Sultan Bin Mejren, the director general of the Dubai Land Department, sound ominous. In an interview with Bloomberg last week, which was ostensibly talking about curbing property speculation in the emirate, Bin Mejren let slip his belief that home prices may rise by up to 40 percent this year.

We don’t know how exactly how he came up with this dramatic number, but the projection served to drown out the rest of his message — that Dubai is looking to limit rents for tenants looking for new property in the same way that it already does for those attempting to renew their contracts.

The Land Department’s assessment seems to be a bit out of step with other predictions. Knight Frank says that property prices will rise by up to 15 percent this year, after increasing by 28 percent since the third quarter of 2012. Meanwhile. Cluttons’ third-quarter report last year claimed that prices were just 26 percent below their 2008 peak. If Bin Mejren’s projections come to fruition, buyers and renters could be paying almost as much by the end of this year than they were at the peak of the last property bubble — and we all know what happened after that. If that isn’t bubble territory, I’m not sure what is.

In early March, my own contract is up for renewal. According to RERA’s rental increase calculator, my rent is 44 percent below the average rent for that type of unit in my area, so the amount that I will pay for next year can be increased by 20 percent. I haven’t actually heard from my landlord yet as to how much he’s planning to raise my rent, but he’d be mad not to go for the full amount. And who can blame him? I got in at the bottom of the market, negotiated a good deal, and have had a great couple of years. As an asset, my landlord is clearly going to look for the best return on his investment.

All this means that in a few weeks time, I’ll be looking for somewhere new to live. And from what I hear, I’m going to be in good company. Tenants all over Dubai seem to be back in the market, either as new arrivals to the city, or in a bid to downsize. If the demand is there — and it certainly looks like it is — then this will add up to a bonanza for landlords and brokers. I don’t have a problem with that; it’s the price you pay for living in a fast-growing city where property cycles are quicker and more erratic than they are in developed markets.

But right now, there’s nothing to stop brokers charging the moon for new tenants, and the scrabble to get a foothold in the market before rents go up even higher means that residents are having to make quick decisions. The Land Department says it is looking to change all that. “We are studying laws for residential and commercial properties and each will have its own guidelines,” Bin Mejren told Bloomberg. “We expect to have them prepared in either June or the third quarter. There has to be some regulation for new contracts in order to have stable rental increases.”

That’s all well and good, but the delay before these new rules are implemented (if they ever are) means it’s in the owner’s interest to get as high a price as possible as soon as possible. Couple that delay with Bin Mejren’s assessment that the Dubai market still has a long to go before it hits its peak is, I’m afraid, only going to encourage landlords even further, thereby adding more fuel to the fire.

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Posted by: Fair lady

Dubai marina is overvalued, it's quality, road congestion condition, insufficient parking lots, buildings too close to one another. jlt is a transition hub for companies find it easier to find accomodation for employee new to dubaiwithin jlt itself, its a touch and go basis so it should remain stable in price but investor don't expect drastic appreciation like dm, dt area as theres nothing in jlt. Places in downtown will still appreciate due to its strategic location close to prominent trade mark like Dubai mall so there's still room for rental and resale value growth, it's more for those who can afford and will pay for it. Business bay is the neglected one with potential growth as it close to downtown and szr, and only half or 2/3 the price. Govt shd control off plan, increase resale fees/agency fees, service charge should also be control. Currently the law here are more pro to seller/landlord only. Why tenant and buyer should pay all costs and not share!

Posted by: Oor Wullie

DXBHeadhunter - spot on with comment about finite land mass in Singapore & Hong Kong... Dubai appears only to constrain itself by mandating beach/water-front living for all (well, most!)

Peter Cooper - don't agree with your "Historically people living in Dubai enjoyed cheap accommodation":
1) comparisons with situation prior to ex-pat explosion and the onset of large developments to house them may be invalid
2) when I came from UK in 2006 (from a large 3-storey house), the 'generous' government allowance of AED90,000 would barely get a studio apt in places like SZR, Marina, Palm Jumeirah (luckily government accommodation was provided)
3) by the time I moved in 2008, renting a 3-bed on Shoreline was ~AED350,000 - that's $100,000/year!!! (representative example)
4) by the end of 2008, the market had tanked and rates then dropped in 2009 by anything upto 60%/70%
5) lower rates were only the result of a global financial collapse - not the market stabilising on supply/demand

Posted by: Sam Abronchi

The current property prices are only 28% below 2008 prices. In 2013 property prices raised 22%. With 32 % mortgage (3.2 % *10 years) and 6 % property Land dept. registration and annual service.

So 40 % above 22% so 62 % compares to 2008. This is definitely Another bubble !! it is expected after expo completed in 2020 due to supply and demand plenty of projects will be completed and vacancy will be minimized.

I see another crash worse than 2008, do you agree with this statement?

Posted by: Craig

Ed, it's your kind of situation and your resulting actions that are adding fuel to the fire and increasing rents for all! As already stated your landlord has already missed his window of opportunity (90 days) to increase your rent this year if it is up in March, therefore your rent will stay the same this year. Don't cave in and just move or pay more anyway! :) The law is on your side and there to protect you and others.

Even if he hadn't you would need to do your sums. An increase of 20% of a relatively low rent may still be cheaper than adding together the moving costs, the agency fees, the alterations to the new place or new curtains/furniture required plus you will not get the same level of property in the open market for the rent you are now paying.

If everyone just read the very simple rental laws of this land abided by them (tenants and landlords) the place would be a much happier and more fruitful place all round!

Posted by: DXBHeadhunter

What many seem to overlook is that in cities like Hong Kong, Singapore, London etc. there is a finite supply of available properties and land. Dubai keeps expanding outwards (and there is no shortage of new land to build on) yet time and time again we are getting various justifications for increasing property prices and rental charges that do not make economic sense!

Posted by: SKP

No doubt, the real-estate market is behaving in an unusual manner.. the hype being created is simply unbelievable. no-one has learnt from the crisis of 2008...

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