Thursday, January 22, 2009

Rent situation explained

After an inevitable couple of days of confusion following the first incomplete announcement we now seem to have clear clarification of the rent freeze/increase issue.

On the surface there's some confusion because we have both a freeze and a 20% cap on increases, but it's actually explained reasonably well.

Gulf News has a very good report with details, many examples of average rents and an interactive map on which different areas' rents can be checked.

It also has the wording of the full decree issued by Sheikh Mohammed Bin Rashid, which is very useful.

The appropriate rent for an area is based on the new Rent Index issued by RERA, the Real Estate Regulatory Authority. In turn that's based on rent information submitted by landlords and tenants to the RERA website Last year registration was voluntary, from the beginning of this year it's been compulsory but my guess is that many leases have not been registered.

Put simply, if the 2008 lease is being renewed and it has a rent within 25% of the index it can't be increased. If the rent is more than 25% below the index there's a sliding scale of maximum percentages by which it can be increased based on how much below it is, the maximum being 20% for rents which are 56% or more below the index.

It's a good start but I think renters have will have to be a bit patient with it, because it's going to take a while to get it all up-to-date and working efficiently.

What we have as the basis for the whole calculation is an index based on a small number of the actual leases out there and based on last year's rents, which are now way out of date. The report says, for example, a two bedroom apartment in Mirdif is shown in the index at Dh120,000 to Dh130,000 while the actual rent now is around Dh90,000.

Article (4) (2) of the decree says that RERA "shall review and update the Rent Index of the emirate of Dubai periodically" and that obviously needs to be done quickly and frequently, I would say at least quarterly. For it to truly reflect what's happening they also must ensure that all leases are registered.

Not everyone will be happy of course because the index will in the present climate almost certainly be showing lower rents each time it's updated. What you pay will be based on what the index says on the day you sign, so people signing later in the year can expect to pay less than those signing at the beginning.

Not perfect but it does address one of the major problems companies and individuals have struggled with over the last few years, and one of the biggest contributors to our high inflation rate. It's one of those times when market forces couldn't be left in control and government intervention was necessary.

Check out the full information in Gulf News. The main report is here and it has links to the other pages.


JadAoun said...

I read the decree but I didn't understand the "average similar rent" phrase. What does that mean? Is that the mean of the index or what my new neighbors are paying when they moved in last year?

In my case, I'm have a two-bedroom apartment in Barsha for 87,000. According to the index, a two-bedroom in Barsha should cost between 100,000 to 160,000. So will I face a hike in my rent?

I'm still confused.

Seabee said...

Jad, as I understand it the index shows a range of rents for each area based on the quality of the accommodation. So the Barsha figures you quote would mean an older property with less facilities would be 100,000 and a new property with good facilities would be 160,000.

Whether you face an increase depends on the standard of your property.

If it's the 100,000 type then your rent is within 25% of it so the landlord can't raise the rent.

If you have a beautiful new all-facilities place then the rent index says 160,000 and your rent currently is way below that, so he can increase it.

Dave said...

I think the example they give of Mirdiff is not a good one.

A quick check of Apartment prices at Uptown Mirdiff (2 b/r) on the Gulf News website and you will see that they are currently asking between 160,000 - 180,000 for what few are available.

One b/room apt's are going for 130,000, and I know for a fact that they are being occupied (still / now) at this price.

Demand will probably always outstrip supply in this complex due to the massive amount of amenities available there.

So if you take Uptown Mirdiff out of the equation then the number of apartment blocks is ..... zero.

So please show me where I can a rent a 2 b/r at Uptown and I will gladly give 12 months rent in advance.

Work on all other future blocks appears to be pending, leaving Uptown still the only group of apt's in the area.

Seabee said...

Good point Dave. Maybe the example they gave was a run down old joint with no a/c!

Rose in Dubai said...

Oh great, now its so much clearer than mud... maybe more like porridge now.

I forsee a lot of empty properties. The RERA index is based on totally unrealistic unsustainable figures and zero% of unrealistic is still unrealistic.

There are small 3 bedroom villas to let where I live, they've been on the market for over 6 months now but the landlords are asking 300,000 for them. Thats nearly 60 thousand UK pounds a year. Where I come from that's a bloody good salary!

Dubai said...

This Dubai rent cap calculator should help. Enter rent and Dubai rent index limits for that area to see what you could pay. Any feedback welcomed so it can be improved. Thanks :).

Anonymous said...

The rents willl have to go down a fair amount for them to be in line with what is considered acceptable in ANY country.
My friend paid 200k 6 months ago for 1 year in a small 2 bed in Old Town.
Thats to live in a half built construction site. Its absurd.
I have a written a piece on the challenges facing dubai in a new world/century.