Dubai: Some commercial landlords are starting to allow it for the first time, while in the residential space, more landlords are convinced allowing monthly rental payments is the best solution - at least for now. If tenants keep making a strong case for monthly payouts, this could finally break the dominance of landlords collecting tenant cheques for quarterly or even six months in advance.
All that this does is lock in a significant amount of tenants’ funds in advance payments. At a time when many are trying to squeeze out more from their income, these cheque advances seem like a relic.
“Monthly payments by direct debit/credit cards will become the norm and the property management structure will need to be able to address these requirements,” states a brand new report from Asteco on first-half rental and sales trends in the UAE marketplace. “In addition, there may well be a trend for more flexible Residential options in terms of lease terms, and more limited upfront capital requirements due to shorter term employment opportunities and to address concerns over job security.”
But other market sources say it will more than three months to bring about far-reaching advances on tenant-landlord payment transactions. Back in 2009-12, monthly cheques were introduced as part of some landlord incentives, but at the first signs of the rental market starting to firm up, these practices were discarded in favour three- or six-month advances.
But in an environment laid low by the COVID-19 impact, easier payment terms could soon be back on the agenda. According to the Asteco report, rental changes - unless it is to reduce the rates - are not a high priority for tenants.
“Despite discounts and incentives offered by residential - and commercial - landlords, we expect a reduced number of new leases and renewals in the short-term as tenants adopt a wait-and-see approach.” the property services firm said.
How much have rents dropped?
Between April to end June, rents in the residential space were down by 4 per cent, and 13 per cent over the last 12 months. Most forecasts reckon these drop patterns will remain for the near term, “or even intensify due to the expected volume of additional supply combined with a potentially sharp drop in demand in the short- to medium-term due to the impact of COVID-19 on employment.”
A good-sized drop in supply
Where a decline will happen prominently is on the offplan supply and construction. Latest research suggest approximately “20 per cent of previously tendered or under construction projects have been put on hold, temporarily or indefinitely, and our projections have been revised accordingly,” the report states.
In the second quarter, about 4,200 apartments were handed over, itself a sharp drop from the 5,750 units delivered in the first three months.
As much as in Dubai, developers in Sharjah too will have some work to do absorbing a steady flow of completed properties, most of them small clusters within massive master-developments. as such, during April to June, the sharpest fall in rents was felt by high-end apartments in Sharjah, with drops of 8 per cent year-on-year. It wasn’t just at the top end of the market - mid-sized units in Ajman too took a rental hit, with rates down 6 per cent. “The downward pressure on rates is expected to continue with the steady delivery of new supply,” Asteco notes. “Falling rental rates are likely to add to this pressure and further impede the recovery rates in the northern emirates over the short-term.
“The work-from-home culture has increased demand for larger units. However, salary cuts and job losses have tempered any potential rental increases with many tenants ultimatley being forced to downsize, reduce expenses or leave for their home country altogether.”
In one such issue, Dubai’s Rental Disputes Settlement Centre allowed a healthcare business operator to terminate a lease contract just six months into a half-year term.
“The landlord was ordered to return two of four rent cheques paid in advance by the tenant (equivalent to 6-months’ rent) and the security deposit,” says an update from the Al Tamimi & Co. law firm. “The tenant was excused from paying any early termination penalty, and the landlord had to pay all the RDSC fees.”
To prove exceptional circumstances require him to renege on the rent agreement, the tenant provided proof of “contracts which had been cancelled to support its claim”.
“This relief is only allowed where the tenant can show that he would be put to grave loss or extreme hardship if required to fulfil his obligations under the lease,” the Tamimi & Co. update adds.