There is a notable increase in property demand in Dubai, with both villa and apartment rents experiencing a steady upward trend.
“In response to an extraordinary surge in demand, the Dubai real estate market is undergoing unparalleled growth, surpassing the available supply.
With a noticeable increase in property demand, both villa and apartment rents are steadily climbing, and there are expectations of further rises throughout the year. However, it is essential to be aware of the legal limitations on how much your landlord can increase the rent.
Ainsley Duncombe, Founder of Off-Market Listing (OML), emphasized in an exclusive interview with Arabian Business that the Real Estate Regulatory Agency (RERA) has established clear rules and guidelines to ensure fairness and transparency, particularly concerning annual rent increases. He noted that tenants are increasingly educating themselves about their rights and are challenging landlords when there is a deviation from the legally allowed rent increase.”
The Dubai Land Department (DLD) offers a rental increase calculator, enabling tenants to verify whether their landlord’s proposed rent hike complies with Decree No. (2) of 2011.
In Dubai, there is no arbitrary maximum limit for rent increases. Instead, the Real Estate Regulatory Agency (RERA), operating under the Dubai Land Department, has implemented a tiered system indicating the allowable percentage increase, considering factors such as the average decline in the rental value in the region, based on specifications like location and the number of rooms.
Several factors are taken into account, and landlords are restricted from raising rental rates beyond the guidelines set by RERA. Typically capped at a 5 percent increase, this limit has recently doubled to 10 percent. If landlords issue eviction notices to tenants, they are prohibited from re-renting the property, as mentioned by Liam Dawett, Sales Manager at BetterHomes, in comments to Arabian Business.
According to the DLD website, the rental calculator serves as a tool to resolve disputes between landlords and tenants regarding rent increases.
How are rental increases calculated?
- If the rent is discounted by 10 percent from the market value, there will be no increase.
- For a rent reduction of 11-20 percent compared to the market value, the maximum allowable increase may be up to 5 percent.
- For a rent reduction of 21-30 percent compared to the market value, the maximum allowable increase may be up to 10 percent.
- For a rent reduction of 31-40 percent compared to the market value, the maximum allowable increase may be up to 15 percent.
- If the rent is discounted by 40 percent or more from the market value, the maximum allowable increase may be up to 20 percent.
How to calculate the permissible rent increase on the RERA calculator?
- Visit the official DLD website
- Navigate to e-services and select the inquiry about rental index
- Click on ‘Access this service’
- Choose the property type and fill in the required details including contract end date, property type, area, bedrooms and current annual rent
- Click ‘Calculate’
The escalating rents in Dubai can be attributed to various factors
An increase in rental prices in Dubai is anticipated due to various factors, such as property handovers, a surge in migrant arrivals, and a limited housing supply. As the market becomes more competitive, tenants may encounter new challenges when negotiating flexible rental terms.
“Dubai is expected to witness 30,000 to 40,000 property handovers, accompanied by an influx of over 400,000 individuals migrating to the city. The ongoing scarcity of housing supply is likely to persist throughout the year, leading to an impact on the upward trend of rental prices,” clarified Dawett.
The projected rise in rental prices is attributed to heightened investor interest, a growing number of professionals moving to Dubai, and the city’s increasing appeal to high-net-worth individuals. The strong demand in the market is influenced by Dubai’s attractiveness as an investment destination and the preference for property ownership over renting.
“Financial strain is a primary worry, as this increase in rental rates could present difficulties for current tenants managing a fixed budget. The affordability of housing might also emerge as a pressing concern, potentially leading tenants to consider relocating to areas with lower rental rates or exploring alternative types of accommodations. The rise in rental costs could also impact tenants’ capacity to save money or invest in other areas, prompting a reevaluation of financial goals and adjustments to budgets,” he explained.
According to Jake Walton, Leasing Director at haus & haus Real Estate, various factors contribute to the escalating rent and demand, such as population growth supported by the Dubai 2040 Urban Master Plan, the influx of high-net-worth individuals, corporate tax incentives in free zones, the golden visa, and more.
Walton added, “Mass migration is intensifying, and social media plays a role as everyone these days knows someone (or follows someone) who is living a great life in another country; the world seems more accessible than ever, and Dubai offers everything you could want, regardless of where you are in life.”
Moreover, Walton emphasized that “Crime rates, cost of living, and the weather appear to be deteriorating in places like the UK, and professionals are more willing than ever to uproot their lives in search of something better.”
Best areas for tenants amid rent increases
Villa areas, marked by a scarcity of available properties, are anticipated to endure rent hikes more robustly, making them less susceptible to the upward trend in rental prices. Those seeking stability and reasonable rental rates may find these areas to be a more favorable option. Nevertheless, Dawett recommended: “Tenants need not necessarily steer clear of particular locations; instead, their choice should be guided by the quality of life they desire or the proximity to their workplace.”
Duncombe recommended that effectively managing rental increases involves prioritizing value and exploring off-market options, which often provide more budget-friendly deals compared to listed properties. For example, Jumeirah Village Circle (JVC) offers attractive properties at affordable prices, especially in areas situated further inland, away from iconic landmarks that have driven up property prices due to the success of short-term rentals. Other affordable areas include International City, Arjan, Remraam, JVC & JVT, Deira, and Sports City.
Conversely, Walton pointed out that highly saturated areas like Downtown or the Marina, where tenants have numerous options, tend to experience slower rent increases. He also emphasized the potential benefits of considering upgraded units, which may have lower average rents compared to standard units. This factor can influence rental index calculations, particularly in communities where different types of properties, such as 4-bedroom townhouses and standalone villas, are grouped together. Choosing a higher-priced villa in such communities could work to one’s advantage by pulling averages from the townhouses, thereby minimizing the likelihood of a rent increase.
Negotiating terms that are advantageous with landlords
Duncombe pointed out a growing trend where tenants are opting for multi-year agreements with landlords, allowing them to secure the current rental rate for 2-3 years and providing assurance about the stability of their rent for the upcoming years. Nevertheless, landlords continue to engage in negotiations for increased rents when tenants opt for 12 monthly payments.
“Despite becoming more common worldwide, the 12-cheque contracts still evoke apprehension among many landlords. Although there is a growing acceptance of such agreements, it often prompts landlords to demand higher rent as compensation,” he explained, emphasizing that this has resulted in a surge of financial institutions “exploiting” the situation by offering rent packages with less frequent installments for landlords.
Walton warned, “Tenants should be mindful that no rent increase or alterations to lease terms are permissible within the initial two years of a lease agreement. If landlords wish to make any changes to the rent or contract terms, they must provide a 90-day notice before the lease expires.”
“In instances of disputes regarding renewal figures, tenants can utilize the Rental Dispute Centre’s ‘Offer and Deposit’ system. This involves submitting the original lease contract, a new lease contract, post-dated cheques, and copies of all correspondence with the landlord. A judge will review the documents and either mandate the landlord to sign and deposit the cheques or return them to the tenant,” he advised.
As Dubai’s rental market undergoes a period of transition, with rising rents expected to affect tenants citywide, Duncombe concluded, “It’s crucial for tenants to stay well-informed about rental regulations, comprehend their lease terms, and take a proactive approach in communicating with landlords if they foresee challenges in meeting the increased rental costs. Seeking advice from legal professionals or RERA may also prove beneficial in navigating these situations.”
