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Wed 21 Jan 2009 02:02 PM

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UAE rents 'more likely to fall in 2009' - senior economist

Upward pressure on rents to ease as more expats leave - Standard Chartered.

Rents in the UAE are likely to fall as the country’s population flows reverse, a senior economist said on Wednesday.

“We expect rents to cool off as population inflows slow down,” said Philippe Dauba-Pantanacce, of Standard Chartered in a research note.

The bank earlier warned that rising job losses would inevitably force a number of expats to leave the country, with the majority of the UAE labour force made up of foreign nationals.

Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum on Monday issued a decree freezing rents on properties in 2009 for tenants who renewed contracts signed last year.

However, if rents are more than 25 percent below the guideline figure recommended in Dubai’s new rental index, then the freeze does not apply.

This means many expatriates who arrived in the emirate before rampant inflation took hold, face paying substantially more to renew their leases this year.

The formula suggested is believed to be as follows: For rents 26-35 percent below, the increase can be up to five percent.

For rents 36-45 percent below, the increase can be 10 percent, while for rents 46-55 percent below the guideline, an increase of up to 15 percent can be added.

For rents more than 56 percent below the guideline, a maximum increase of 20 percent can be applied. Arabian Business contacted the Real Estate Regulatory Agency for confirmation on the figures but no-one was able to comment.

Dauba-Pantanacce said that there is mounting evidence that rents are more likely to fall than increase irrespective of this new decree.

“The introduction of a rental index is a positive development which can bring more transparency to the market,” he added.

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Martin 11 years ago

Why didn't they make the rental index over a period of 5 years and than take average prices instead of the inflated prices from 2008? Just opt people to show their old contracts.

Mart 11 years ago

As this article points out, soon the rent cap will be redundant. Thousands of people are leaving Dubai either because its too expensive, or because they've lost their jobs. Up to 50% work in real estate and construction. Those industries are almost at a standstill. That means tens of thousands of lost jobs. Tourism will be destroyed as recession hits Europe and the UK, and Dubai's dollar peg makes it absurdly expensive as a place to visit or do business. That reduction in tourism will spill over into retail, restaurants, hotels and airlines. Thousands more jobs go. And unlike back home, when people lose their jobs here there is no unemployment benefit - they have to leave. And now the removal of the rent cap will find those that still have jobs finding that they can't pay the rent - so its bye bye Dubai for them as well. With off-plan prices well below those for finished ones, developers are rushing to finish existing building. New apartments coming online just as hundreds of thousands of expats leave. All those empty flats points to a collapse in rental prices. Its called market forces folks!

Michael Malas 11 years ago

Frankly it is ridiculous that they choose rent prices based on the inflated prices of 2008. They should have calculated the index based on the last 10 yeras. Imagine those who have been living in the same villa for last 10 years, and will have to pay higher and almost the same as the tenants living in new villas built in 2008. Is this as punishment for coming to Dubai much earlier when there was hardly any infrasructure? and help build the city? Personally I think this rule is more made to protect those who have real estate investments rater than the tenant. In reality we are facing hard times and uncertain future lies ahead of us. Rules should be made to help us ride through these very high waves and not let us sink.

Akbar Kazmi 11 years ago

Developers have also contributed to the problem by unilaterally increasing service and maintenance charges every year, some of them increasing the charge to twice the level of the previous year such as in the case of the JBR development. Thus when the net return to the landlord is reduced by as much as AED 30 thousand on a 3 bed apartment, they are bound to try to push the rents up. Developers should also be held accountable and should not unilaterally increase these charges since by doing so they cause the owner/landlords greater difficulty in the repayment of the mortgage loans, and have to spend more and more from their monthly salary to service the loans. Thus owning property in Dubai becomes less and less viable as the returs from the investment continue to dwindle. While RERA is annually introducing a rent cap, a similar cap should be placed on the developers with respect to the maintenance charges.

Saeed Iqbal 11 years ago

To Greedy Landlords, You must have been thinking that the hardworking expats who come here to live and work, are homeless but you are mistaken. We do have a home and we came here for mutual benefit. If we are taken for a ride (which you people have already started doing) then the time will come soon when we will return to our homeland and we shall never return, no matter what because we have seen what you are made of……be reasonable. If we can’t save and have to take loan to survive then what is the point.

umesh 11 years ago

How about rents which are above RERA index. Are they planning reduce it or it stays...as the Decrees goes "FREEZE".

Tsotsie 11 years ago

Regardless of minimum or maximum rent caps a landlord will want to rent his property and soon there will be many more properties than tenants. The result will be that in order to make their properties more attractive than the one next door landlords will be cutting rents. I will certainly shop around for something better for less and so will many others.

lightfighter 11 years ago

So, what about those people who do not live in a villa but a townhouse? The Al Reem's have small terraces of 4, as do the Palmera's and the newest ones built on the lake - does this mean they are exempt from the ridiculousness? Just to belabour the point how can you compare a 2/3/4 bed townhouse with 3/4 bed villa - the floor areas for starters are considerably less. Interestingly enough, if you went to rent committee then your contract had to be registered, and I know loads of people like myself who went to the RC, and won, who have been here 3 years, and are thus paying about half the current rates (not lack of use of market!). Ergo, there must be lots of old contracts registered.

Claire 11 years ago

I live in a villa and have done for the last 6 years in Umm Suqueim, my villa is over 33years old and the maintenance is extremely rare, does the rental index account for this ?

The Consultant 11 years ago

To answer those people who have asked why the rental index is not based on the average of the last 5 or 10 years, the answer is simply that those are not the market rents. When you go into a car showroom, do you expect to pay the average of the last 5 or 10 years price? Of course not, you either pay the current price or you don't buy the car. The purpose of the index, as I interpret it, is to gauge how far below the current market rent a "capped" lease agreement is, and make some movement towards the market price. As other commentors have pointed out, the maximum increase allowed is 20%, and for that you would have to be paying less than half the index rate. For gauging the true market rate, RERA should only be looking at new contracts, it is pointless including "capped" renewals as these are not reflective of market rates. For those people who have obviously been in the same property for many years, and complain that their current rental is well below the index level, or that their accomodation is badly maintained, I have to ask - surely you must have realised that you couldn't rely on paying well below market rate indefinitely? A quick look around Dubai over the last 5 years would have shown you that old buildings are being knocked down all the time, and unscrupulous landlords are finding ways, legal and illegal, to get their old tenants out. So what have you been doing to prepare for the inevitable? Have you pressured your boss for a raise? Developed new skills to get yourself a promotion? Have you been looking for other jobs that pay allowances that are reflective of the true cost of renting in Dubai? If not, why not? Of course, ideally, the Government would have instructed one of the major developers to build a load of low cost housing 5 years ago, in order to make sure there was no shortage of accomodation to suit all budgets, but unfortunately this didn't happen. We will have to instead take whatever comfort we can from the fact that rental prices are dropping and will most likely continue to drop for many months to come.