Dubai tenants learn to use new star-rated rents to their advantage

Dubai: Looking for a home with a lower rent on an apartment in Dubai? Then, all you need to do is find out what that building’s star rating system is.

Just days after Dubai Land Department launched its digital Rental Index, tough negotiations are going on between tenants and landlords over renewals and, specifically, about how high a rental increase tenants need to pay.

The same is happening when a tenant seeks a new lease, in what property market sources say is a ‘real-time shift’ in tenants exercising their rights.

“Landlords will have to reveal the star rating assigned to the building at the time of the contract,” said the owner of multiple buildings in Dubai. “The landlord will have to prove their star rating. If it’s a 4-star building, only then can they justify an increase of up to 20%.”

Now, a majority of the buildings in Dubai - especially new ones - would fall under the 3- or 4-star rating. Their common areas would obviously benefit from the newness of the building, which would be the case with facilities such as the gym and the pool area too.

But older buildings that have failed to meet regular maintenance and are now saddled with a lower star rating would face problems when it comes to setting rents - and getting them.

‘More pressure on OAs’

In freehold apartments buildings, the homeowner associations (OA) will feel the brunt of the new pressures. It’s the OAs that award annual contracts to property and facilities management companies to ensure the upkeep of the building, while individual owners take care of their apartments.

OAs set annual service charges to raise the funds necessary to meet the maintenance and repair demands. “As tenants get more bargaining power because of the star system, landlords will now exert pressure on OA management companies to improve building amenities,” said Sameer Lakhani, Managing Director at Global Capital Partners. “It will also mean landlords having to do up their apartments too.

“This will gradually lead to a more qualitative assessment of rental values in Dubai and property prices too.”

Suppose homeowners believe that their property management companies are not meeting their demands, the chances are they will be given the push and new ones signed up. “Earlier, property management companies were signed up by OAs based on how low they can quote their price,” said the owner of a leading facilities company.

“From now on, any contract win will require lower prices and higher maintenance standards. It will be difficult…”

3-6 months for effect to show up

Dubai property market sources say it will be by June-July that the impact of the new star rating will reflect much more stridently in rental negotiations. This would be because:

• Most areas and buildings in Dubai have already seen 3 years’ worth of rental increases. That means, even before the digital Rental Index went online last week, the pace of rental increases has shown signs of slowing down.

• When newer buildings are ready for occupancy in the coming months, they will immediately carry a premium based on their location and higher star rating they possess.

• As said before, real changes will be felt by older buildings in the city. Once those apartment leases come up for renewal, that will dictate rental trends.

“In the medium term, some tenants in Dubai will have reason to be pleased with a moderation in rental values,” said Khalid Yusuf, Director at Homes 4 Life. “It will become more difficult to raise rents in the mid-end of the Dubai residential market unless the building owner or landlords decides to ‘gentrify’ it.”

In other words, they go in for a heavy upgrade to their building to justify the rent.

Either way, the tenant wins. Or at the very least, get to be in a win-win situation.