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
By Ed Attwood
Sat 11 Jan 2014 02:38 AM

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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