Resurgent property market: Facing a rent hike? UAE tenants can have the upper hand in rental contract negotiations
UAE property market is now seeing much investor interest, but is increasingly renter-led
Dubai: With the UAE property showing signs of recovery, and rents seen rising in some parts as a result, it would be useful for a largely tenant-led real estate market to understand how one could potentially negotiate a possible cut.
Moreover, recent surveys have been indicating that UAE-based tenants have been having the upper hand in rental contract negotiations. But how should renters go about it if they are seeking possible cuts in current rental rates?
“Occupiers have greater bargaining power and flexibility in negotiating with landlords,” revealed a new study by Dubai-based real-estate consultant CBRE.
“Incentives seen more frequently include rental reductions and the possibility of rental payments in multiple cheques.”
Occupiers have been having greater bargaining power
The UAE’s property market, which is currently seeing an increased level of investor interest, is now “increasingly a tenant-led market," CBRE further added.
Today's market is more tenant-driven as landlords use incentives such as multiple cheque payments, no commission or inclusion of utility fees to retain and attract tenants.
However, looking back, Dubai residents who have stayed for the long haul during the past decade or more will have experienced both extremes of the rental market cycle.
How Dubai rental rates have evolved in the past decade
Like any market, Dubai's property sector has had its ups and downs amid global economic fluctuations since 2008. As a result, long-term tenants may have found they were paying almost half the annual rent at some point in time compared with the earlier years.
Rental rates in 2008 were much higher than today with a rapidly expanding workforce and economy. However, the global financial crisis sent rents tumbling in 2009, and they remained subdued until 2012 as recovery emerged.
In Dubai Marina, for example, the average cost of a one-bedroom apartment in 2008 was Dh130,000, before falling to Dh63,000 in 2011. Rents in the area climbed in later years to as high as Dh113,000, and by the end of 2019 and 2020 were back down at an average of Dh58,000.
Rents, asking prices have been dropping in the UAE
Rents for residential properties and apartments have been persistently dropping in Dubai, with villa rents falling by 2 per cent and apartment rents dropping by 10 per cent in the first quarter, compared to the same period last year.
However, asking prices have fluctuated across different locations or communities, with leasing rates posting single-digit declines to double-digit increases, indicated data from Dubai-based real estate software firm Property Monitor.
Discovery Gardens has recorded rental declines of 22 per cent in the 12 months to end March and listings show one-bedroom apartments there at just Dh30,000, with some landlords allowing one- or two-month rent-free stays.
Even slightly more upscale surroundings – such as JLT and Dubai Marina – have recorded 16 per cent drops during this period, according to Core, the property consultancy. This has created opportunities for tenants to take a one-bedroom at a slightly upscale Dubai Marina tower for around the Dh55,000-Dh60,000 mark, while a JLT unit would be under Dh50,000.
Rents dropped in Sharjah, Ajman, Ras Al Khaimah
Sharjah rentals in the residential space are down 13 per cent from what they were a year ago, while Ajman rentals are down by about 10 per cent. Ras Al Khaimah shows the slightest year-on-year drop, of 4 per cent, according to a an update from Asteco, the property services firm.
These numbers suggest that the UAE’s rental market seems to be nearing stability after three to four years of declines. The same is happening in Dubai, where in fact, some locations are actually seeing rental gains in recent weeks.
At the Palm or the Downtown, rents have gained 4 to 5 per cent between fourth quarter 2020 and first quarter of this year.
Tracking rent indices is key to negotiating lower rents
When potentially altering a rental contract you are asked to communicate the changes to the landlord at least 90 days prior to the expiration of the contract but if you have missed this window, you will not be able to alter its contents at all. If, however, you still have time, the key lies in the preparation.
The Rent Index, managed and periodically updated by the Dubai Land Department's Real Estate Regulatory Authority (RERA), shows the average rents for all communities in Dubai.
It also tells you whether your landlord is entitled to increase your rent, and if so, by how much, in terms of a maximum percentage. So, if you're seeing a drop in average rents in your community, it would be best to be armed with the latest official numbers before you go in for a discussion with your landlord.
However, experts have noted that the RERA rental calculator does not really help you when the rental market is soft. This is due to the fact that the calculator is only updated once a year and therefore is not as accurate as it ought to be for reduced rental price renegotiations.
How else can I do my research on rental prices, and renegotiate?
Research on prices can also be done by visiting property portals such as propertyfinder.ae and bayut.com and filtering your search to specify the tower and type of unit you are living in, which will give you a fairly accurate range of what is available on the open market.
Such websites also give current trends and reports regarding property prices for sale or rent in their blogs. You can find these either at the top or bottom of the homepages.
From this point, you will be able to come up with a reasonable rent to reflect current prices. You can arm yourself with additional facts and figures through newspaper websites, which usually report property price trends on a regular basis.
How tracking portals helped a Dubai resident negotiate rent
Hannah, an expat who's currently renting a two-bedroom apartment in Dubai Marina, shares her recent experience: "I was paying an annual rent of Dh150,000 for my apartment, which seemed fair till last year when the Rent Index showed the average rents to be Dh140,000-180,000 for two-bedroom apartments in Dubai Marina.
“And the most recently updated Index showed a drop in average rents for the same property segment to Dh120,000-160,000. This information helped me bargain with my landlord, who's just agreed to drop the rent to Dh140,000."
Home buying appetite too buoys property market
During the first quarter of the year, apartment supply in Dubai stood at 1,925 units, with deliveries in communities such as Dubai Hills Estate and Dubai Creek Harbour. More units are also expected to enter the market within the next few months and developers have resumed launching new projects. In Abu Dhabi, approximately 1,700 apartments and 50 villas were handed over during the same period. Another 11,600 residential units are expected before the end of the year.
The UAE has seen an increased level of homeownership demand, with sales transactions surging to record levels in recent months. Last April, more than 4,800 Dubai properties, with a combined value of Dh10.97 billion, changed hands. The sales value was the highest recorded in Dubai since March 2017.
UK-based data analytics and consulting firm GlobalData noted that the clearest sign yet of the resurgent market came when UAE-based property developers Nakheel, Emaar and Meydan are planning new projects announced, and a surge in home buying interest followed. GlobalData added that plans are also being considered for projects in newer areas of the emirate: areas such as the Dubai Waterfront and Palm Jebel Ali area on the coast close to the Abu Dhabi border.
Despite a surge in interest from homebuyers and homes being in demand, developers are also sweetening their deals, offering rent-to-own schemes, fee waivers, and attractive post-handover payment plans to attract investors.