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Rental index 2018: insights from experts

We ask real estate industry insiders what to expect from Dubai’s new rent index

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The new rent index is generally favourable to tenants
Property Weekly

The Dubai Land Department’s new rental index for 2018 is up and running for all residential, commercial and industrial properties in Dubai. Here is what property experts say about the new index and its impact on rental market activity.

 

Reflects current rents

Dounia Fadi, CEO, MD Properties

In the property market, the law of supply and demand is prominent and it dictates the equilibrium price of a property whether you are talking sale or rent. Dubai lately has more supply than it has ever seen. Hence, rents have gone down by 10 per cent since the first half last year, and average rents have changed in various areas of Dubai. The Dubai Land Department (DLD) rental index for 2018 based on new data and figures will allow a more accurate rental increase calculation and will be used as a reference for tenants, brokers and landlords alike. However, there are more aspects and factors to consider when pricing or evaluating property such as size, quality, location, view and maintenance. Also, the DLD has only updated the average values and not the law, so the initially introduced percentages and rent increase guidelines still apply as before. The index helps to give an overview of the market, but it does have a few drawbacks. For example, if a landlord wishes to increase rent and uses the calculator it might deny the increase, however, in reality when a landlord has to decrease the rent the system does not prompt to how much you need to drop. So, the tenant is discouraged on the higher side of the lease, but the landlord is not encouraged to reduce rent.

Fair protection

Alia Jamal, director of leasing and commercial, Gulf Sotheby’s International Realty

This year, based on the new calculator, a majority of tenants should not face an increase with the new brackets, but landlords can also increase rents where applicable. The calculator offers fair protection for both landlord and tenant. The increase percentage set between 5 per cent and a maximum 20 per cent offers transparency for any increases if applicable.

Enhanced data collection

Zarah Evans, managing partner, Exclusive Links Real Estate

The new index format is a positive move for the rental market and beneficial for both landlords and tenants, allowing rents to be adjusted based on the supply and demand within the specific area. Therefore, it assists in regulating the market. The index will be updated once per year to give fairness to each party and avoid any conflict. This new index format is more beneficial as it shows a more accurate market rate than any previous ones, as all data has been collected from the tenancy contracts registered with Ejari, along with units registered in the DLD database. This is the first time a land rent index has been added for land with annually renewable lease contracts.

Easy ROI indicator

Kunal Puri, CEO, La Capitale Real Estate Broker

The DLD is one of the few government departments across the world which has a rental increase calculator that helps in bringing transparency and clarity to the real estate market. All can take advantage of it, be it a buyer, seller, tenant or agent. Moreover, it also helps in calculating the accurate return on investment (ROI) on any property. This eventually leads to accurate selling price of the property. In this year’s rental index we can see that there is a decline in the rent price of different properties across separate areas over last year. This will help a lot of residents to either upgrade their current residence or use those funds towards their savings.

Grants negotiation power

Sandrine Loureiro, operations manager, Rocky Real Estate

The rental index is a trusted source accessible to everyone, so even though it lacks details such as views, building quality, etc., it allows fair judgment for all parties concerned. It gives owners clear guidelines about what they can and cannot charge upon lease renewal. Tenants are protected from random increases and informed about the market rates, which gives them negotiating power. They still need to make more detailed comparisons by building classification and this is where brokers can assist with well-presented listings. By reviewing the index once a year, the index allows both landlords and tenants 90 days before the termination of the lease to inform the other party about their decisions.

Land tab advantage

Mario Volpi, chief sales officer, Kensington Exclusive Properties

This year’s rent index has introduced a land tab, allowing industrial and commercial property such as factories, showrooms and other general industrial establishments to be featured in addition to the land itself. The index has seen a softening of rents pretty much across the board. Despite the majority of the data coming from the Ejari system, these reductions do not truly reflect the larger price drops in certain areas. Due to the broad average price bands, there could be some increases that are apparently not indicative of what is happening in the rental market. The fact that it has reduced the rents shows that it is in general in touch with the market, however, the DLD is working to make it more sophisticated to take into consideration attributes such as size, view, facilities, modernity, etc. When this is available, both landlords and tenants will finally be in a state of equilibrium.

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