Renew or relocate? Many Dubai tenants face tough choices amid Rental Index changes

Dubai: The coming weeks will be decisive for many tenants in Dubai as they have to decide whether to renew their lease or opt for a brand new rental option. Especially with the summer break coming up, they will need to make those renew or shift decisions fast.

But it is unlikely these will be easy decisions, because this year renewals will feel the full impact on the recently revised RERA Rental Index, which now gives landlords greater flexibility to set their rents in sync with the market average. That means there could be increases of up to 20 per cent when a tenant receives his offer for a lease renewal.

Whereas before the update, landlords had to – in most cases – stick to a particular percentage range when hiking their demands.

“The revised (RERA rental) calculator now provides a more accurate reflection of open-market pricing, enabling landlords to implement significant rent hikes at a time when market rates are finally starting to ease,” says a new Asteco report.

Those ‘significant’ rental increases could then be the trigger for existing tenants to seek a new home for lease. Whereas through the last three years, a majority would have opted to renew rather than seek new premises where they would have to pay ‘market rates’.

There are no communities where rental rates are slowing just yet.

- Jacob Bramley of Betterhomes

Feedback from tenants who already have had their rent renewals since April 1, which is when the new RERA Index took effect, show significant rise in what their landlords are asking for. There is not much tenants can do about it, because even these rates are still deemed close to the market rates for that area.

Now, those market rates are applicable to existing and new leases alike.

Asteco forecasts a rise in tenant movement for several reasons:

In the first three months, before the revised rent index took effect, residential lease renewals were by 5 per cent quarter-on-quarter, and by 12 per cent year-on-year, ‘with numerous tenants consenting to above average rental hikes’, according to Asteco.

What are tenants moving out looking at?

Across Dubai, rent increases continue to average in the double-digits at in-demand locations. So, if a particular area has seen a 10 per cent average rise, “It would mean tenants would be looking at a 5 per cent increase in their rent,” said by Jacob Bramley, Senior Leasing Manager at Better Homes.

“To move to another property, like-for-like in the same community, it would be a further 10 per cent on what they are paying now, plus a deposit of 5 per cent (it’s 10 per cent for furnished properties), an agency fee of 5 per cent of the contract value, a Dh2,000-Dh4,000 DEWA deposit, and other associated moving costs.”

Go for longer leases?

Some tenants are working out arrangements with landlords for multi-year leases, thus locking in their rent obligations from further hikes during the period. In locations such as Downtown, Dubai Marina, the Palm and elsewhere, landlords have shown a willingness for such contracts. "We are securing more multiple-year leases for our tenants due to their desire to secure a home for 2 plus years," said Bramley.

How are rentals looking like?

Prime locations in Dubai such as JBR, Jumeirah Lake Towers, Dubai Marina and Business have seen between 6-10 per cent rental increases over the 12 months ending March. Clearly, the rental hikes have slowed – but that could still change after the transactions from April start coming in.

Because there will be renewals that should see significant hikes for existing tenants as market rates come into effect even for them.

Market sources say that rental transactions done starting April will give a far better picture of where rates are headed in the next one or two years. "If a few leases at a particular community in the coming months are renewed with significant increases, it will skew the dynamics for that entire area," said an estate agent. "Everything will change after April 1 with the new RERA Rental Index."