Landlords in Dubai have begun raising rents upon renewal of their tenancy contracts following an update by the Real Estate Regulatory Authority (RERA) to its rental index, enabling property owners to align rents with market value.
According to industry executives, numerous tenants in the emirate may not experience rent hikes until later this year or early next year, coinciding with the conclusion of their current tenancy contracts. This delay is due to RERA guidelines, which stipulate that landlords can only adjust rents at the time of tenancy renewal.
The Authority updated the index in March, anticipating a potential rental value increase of up to 20 percent for tenants in the emirate. This adjustment is expected to particularly affect tenants who have resided in the property for more than two years.
“For some time now, we have observed escalating rents in the Dubai real estate market. However, when tenants opted to renew their leases, RERA guidelines significantly limited landlords in terms of rent hikes. Consequently, this resulted in a considerable gap between market rates and those paid by long-term tenants.
“The revisions made by RERA to the rental index empower more landlords to adjust rents, with many now able to implement larger percentage increases than previously permitted. Consequently, this will lead to higher rents for numerous tenants upon lease renewal, thereby narrowing the disparity with market rates. However, this adjustment comes after years of minimal to no rent increases,” explained Alois Kugendran, the general manager for real estate at Huspy.
“However, with these revisions to the rental index expected to narrow the gap between renewal prices and market rates, we anticipate a growing number of tenants either seeking new rental properties at the end of their tenancy or opting to purchase instead,” added Kugendran.
Rents have been steadily increasing over the past three years, a trend that persisted into the first quarter of 2024. However, the pace of rental hikes has slowed over the past few quarters.
“We expect rental increases to decelerate as new housing supply enters the market in the latter half of the year,” he added.
Karun Luthra, vice president for global operations at Foremen Fiefdom, noted that as landlords raise rents in developed areas, tenants are migrating to neighborhoods with lower rental costs.
“Although rents may escalate in certain regions, the shift of tenants to more affordable neighborhoods helps stabilize the rental landscape, potentially mitigating overall rental price hikes. Nonetheless, it’s crucial to acknowledge that rents may still climb in high-demand areas like JLT, Jumeirah, and Al Barsha 1,” said Luthra.
Alina Adamco, head of sales at Metropolitan Homes, pointed out that many property owners are realizing that retaining tenants at the same rent might not be the most advantageous option.
“While market dynamics may suggest an immediate rent increase, landlords must adhere to the Rental Calculator, which limits rent hikes to approximately half the difference between current rent and the calculated market value,” she said.
She added that previously, rental estimates favored tenants, enabling them to remain in properties for extended periods without facing significant rent increases. “Moving out to find a potentially cheaper place wasn’t as appealing as minimal or non-existent rent hikes upon renewal and the associated costs and effort of relocating. However, effective March 1, the rental calculator now reflects current market rents, empowering landlords to align their rental prices with the market. However, landlords must inform tenants of any rent increase via registered email 90 days before the current lease expires,” said the head of sales at Metropolitan Homes.
Industry executives note a sharp increase in landlords seeking rental valuations to raise rents over the past year, as both tenants and property owners become more knowledgeable and savvy about the RERA Rental Index.
Starting April 1, 2024, Anisha Sagar, director of property management at Allsopp & Allsopp Group, stated that landlords are now required to apply for the rent evaluation service.
“For the past 2-3 years, both tenants and landlords have become much more market-savvy with the rental index and rental valuations. Over the last 6-12 months, we have witnessed a significant uptick in landlords turning to rental valuations to increase rents. This occurs when landlords disagree with what the rental index indicates, prompting them to pay for a rental valuation. The rental valuation takes precedence over the rental index. Against this backdrop, while we have observed an increase in landlords seeking rent hikes, it’s not as prevalent as one might assume,” said Paul Kelly, operations director at Allsopp & Allsopp Group.
