Are you ready for lease renewals in Dubai?

Are you ready for lease renewals in Dubai?Image Credit: Supplied

Dubai's real estate sector is stabilising. The rental growth rate slowed down for a third consecutive quarter, reflecting a stable market, according to this month's Dubai Q3 2014 Property Report by Asteco.

Moreover, the rent ceiling enforced by the Dubai Land Department (DLD) protects tenants by restricting the amount of rental increase. However, despite regulatory efforts, rent increases continue to be a top concern for the majority of residents in the emirate, who already have to part with a significant portion of their salaries for accommodation alone.

Laura Adams, Co-founder and Managing Director of Carlton Real Estate, says without a parallel increase in income, the increase in rents in Dubai has made it harder for residents to find appropriate housing. ''The landlords presently adopt a take it-or-leave-it attitude when renting their properties to tenants,'' she says.

''However, they fail to realise that the periods of void that they may have in between due to the high rent expectations eventually bring lesser annual revenue. Additionally, the rent caps do not help everyone as the slabs are too broad... [and] do not consider the age of the building, its features, facilities, etc.

''For instance, as per the rent calculator, a two bedroom apartment in Dubai Marina should be from Dh140,000-Dh190,000, but the buildings are built so differently that some of them may be only worth Dh120,000, while others such as The Address Marina may be worth Dh220,000. In the present ceiling structure, these are all classed in a single bracket.''

Adams believes the rent calculator needs to be made more specific based on the quality of the structure and development, wherein some properties should even be granted a rent increase of up to 25 per cent a year.

Affordability gap

According to the newly released Addressing the Housing Gap report by Colliers International, a commercial real estate services firm, there is an affordability gap in Dubai's housing market. It is a globally accepted standard that rent can make about 30 per cent of a household's annual income to allow sufficient money for other expenses.

The report reveals that half of Dubai households earn between Dh9,000 and Dh15,000 a month. As per the international standard, residents should only be spending between Dh32,500 and Dh54,000 a year on rent. However, finding residential property within that price range is challenging because of the limited options. Often, these tenants have to settle for studios or one-bedroom units in locations such as International City, Deira, Al Qusais and Al Nahda. Residents in this income bracket who reside in other locations in the city or in a bigger unit in the aforementioned locations usually pay more than 30 per cent of their salaries on rent.

Moreover, many tenants have been forced to move to cheaper homes due to rent increases, according to a new online survey of 300 Dubai residents conducted by, a Dubai based comparison site for moving and household service companies. The survey suggests that 36 per cent of respondents experienced an increase of 1-10 per cent in their rents this year, and 48 per cent said that their rents increased by more than 10 per cent.

Nearly 65 per cent of respondents said they are planning to move to a new home at the time of lease renewal due to a rent hike, while around 75 per cent of the respondents who faced more than a 10 per cent increase said they will opt to move to cheaper locations.

Growth rates

Despite a drop in rental rates, the market achieved a double-digit growth year on-year. The average rate for apartments and villas dropped slightly — by 2 per cent and 3 per cent respectively — compared to second-quarter figures. However, rental rates remain an average 26 per cent higher than they were last year, says John Stevens, Managing Director of Asteco.

''The fact that rents have been on a downward trend since the second quarter does not necessarily imply that existing tenants will see a drop in their own rental rates,'' he explains.

''Furthermore, with drops being marginal, only new tenants moving to an area with substantial new supply will be in a better position to negotiate their future contracts with landlords.''

The main areas likely to witness a decline in rent include less-attractive buildings in Business Bay, Jumeirah Village and Dubai Marina, where a lot of projects are under construction and due for delivery in the next few years, says Stevens.

Nonetheless, rents are still significantly higher than last year in these areas, which means many landlords have hiked rates above the prescribed levels.

The norm

Since most areas in Dubai are likely to witness a rent hike, it is essential for tenants to familiarise themselves with the rates of increase permitted by law.

Mario Volpi, Managing Director of Ocean View Real Estate, says, ''A landlord can raise the rent by a maximum of 20 per cent in a year — even then only if the Real Estate Regulatory Agency rent calculator says so and the details of the increase have been communicated to the tenant, giving the statutory 90-day notice.''

Moreover, tenants can check what is actually applicable for their location and property by using the rent increase calculator on the DLD website.

To calculate the maximum allowable rent hike, the tenant will only need to provide basic information such as the date their contract expires, the location and type of property as well as the current rent.

''Landlords may want their existing tenants to leave because with a vacant property they can demand the market rent [which is usually higher than what existing tenants pay], rather than increase the rent based on the average,'' says Volpi.

''In case the landlord increases rent beyond what the calculator allows and does not accept the tenant's cheques, the tenant can deposit the cheques at Dubai Municipality or the rental dispute centre. The municipality will then contact the landlord and inform him to collect the cheques. If the landlord disagrees, they can be forced to renew the contract at no extra charge.''

It is also mandatory for both landlord and tenant to communicate any changes they plan to make in the new contract 90 days before it expires, says Volpi.

If the landlord misses the notice period, the tenant need not accept any rent increase or change in the existing agreement and the landlord is forced to renew the contract based on existing terms.

Rates across the emirate

Property Weekly examines how rental rates are faring in some key locations in Dubai.

Bur Dubai and Karama

Rents in Bur Dubai are still 19 per cent higher than last year, despite a drop of 5 per cent between the second and third quarters, implying that many tenants could see their rents increase upon renewal, says John Stevens, Managing Director of Asteco. The trend in Karama is similar to that in Bur Dubai.

Current rents in the Karama area are Dh40,000-Dh50,000 for a studio, Dh55,000-Dh75,000 for a one-bedroom flat, Dh80,000-Dh95,000 for a two-bedroom unit, and Dh90,000-Dh110,000 for a three-bedroom apartment, he says.

There are new properties coming online every year in Bur Dubai, but it's not the same situation in Karama, says Wafa Ghannam, Residential Sales and Leasing Manager at Better Homes. ''From a demand perspective, we receive enquiries for shared accommodation and flats that cater to families.

''Both areas are generally busy, with a good mix of business and social activities. For example, there are a number of banks, government offices and consulates near these areas. There is also a significant high-street retail experience on offer in Bur Dubai and Karama.''


As one of the older parts of Dubai, Deira is very popular and in demand from low-and middle-income tenants due to the affordability and convenience of the area, points out Stevens. ''Rents are still 35 per cent higher than a year ago and therefore most tenants may witness a further increase in rent. Some new supply is also coming up in the area.''

Ghannam adds that Deira is particularly popular among executives and families due to the number of businesses and the retail offerings in the area, which include the Old Souq and Gold Souq.

''However, business and social factors are not the only influencers anymore,'' Ghannam says. ''An increasing number of tenants are making their ultimate decisions based on the amenities that accompany a property.''

Shaikh Zayed Road

Rents have been stable over this quarter, says Stevens, but they are approximately 21 per cent higher than last year and therefore tenants may witness more hikes.

Current rates in the area are Dh75,000-Dh85,000 for a studio, Dh100,000-Dh120,000 for a one-bedroom apartment, Dh125,000-Dh170,000 for a two-bedroom unit, and Dh160,000-Dh220,000 for a three-bedroom apartment.

Ghannam says new towers constantly being built along the highway contribute significantly to Dubai's unique skyline and real estate offerings. Shaikh Zayed Road has the Dubai Metro network and convenient access to the city's hotels, malls and business hubs, which makes it one of the most practical locations in the emirate.

''We receive enquiries for all kinds of properties — from studios to four bedroom apartments and even penthouses,'' says Ghannam. ''Properties here do not stay vacant for very long. Based on current trends, we envisage moderate gains in rental rates on Shaikh Zayed Road for the year ahead.''


Ghannam says, ''Rents in Jumeirah have increased by some 20-30 per cent this year, based on the Real Estate Regulatory Agency's Rental Increase Calculator. However, this figure can vary depending on the specification and facilities associated with a property. The area commands a premium and we expect year-on-year rental increases in Jumeirah.''

The anticipated growth for next year will be modest and not as aggressive as compared to last year or the first half of this year, says Ghannam.

''New projects in Jumeirah are limited and demand certainly outstrips the units available. For example, villas are very popular in this area but, unfortunately, availability is hard to come by. This is one of the driving factors associated with the premium rents commanded in the area.

''[Some] other contributing dynamics are Jumeirah's close proximity to schools and beaches, thereby making it a hot spot for families,'' she says.

New Dubai

In comparison with traditional leasehold areas in Dubai such as Deira and Bur Dubai, New Dubai has seen and will continue to see substantial additions in supply, implying pressure on rents is likely to be witnessed over the next few quarters, says Stevens.

Find out what to check before signing the lease

Source: Hina Navin, Special to Property Weekly


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