Rent valuation in Dubai
Right through 2022, tenants in Dubai found that renewing their rental contracts made more sense if they wanted to pay a lower market rate. Landlords are trying to change that. Image Credit: Shutterstock

Dubai: Landlords and their tenants alike are keeping close watch on the Dubai Rental Index to see whether it will soon reflect in full the rent increases seen in 2022. But they are doing so for quite different reasons.

Landlords want their current tenants to pay 15-25 per cent higher than when they entered into the lease. Or failing that, get new tenants. This is why the Rental Index getting updated is of such importance.

As for tenants who wish to renew their contracts, they are hoping the current Rental Index range across Dubai’s neighborhoods see the lowest possible increases. And that landlords do not force them to suddenly demand much more than what they are paying now.

This is where the workings and verdict of the Dubai Land Department’s Rental Dispute Settlement Centre is vital. But most of their verdicts are based on the Rental Index, which landlords say do not truly reflect the demand-and-supply situation in the residential rental space.

A Dh100,000 rental gap

Imran Shaukat, CEO of LYM Real Estate, said: “The Rental Index shows rent of two-bedrooms in JLT at Al Seef Tower has not gone up and being renewed at around Dh90,000, whereas the market rate is Dh140,000.”

Such gaps in rental rates require the Rental Index needs an updating, sources add. Kalpesh Sampat, CEO of SPF Realty, said: “The Index takes rents in Dubai Marina in a generic way. However, there is a difference of Dh100,000 in rents between Marina Gate (waterfront-facing two-bedroom unit rent is Dh175,000) and that at Marina Pinnacle (rent is Dh75,000).

The rental index reflects lower rents than market rates, which disappoints investors. The RDC decisions are then seen as even favouring the tenant in a pre-dominant number of cases, because the verdicts are based on the Rental Index that’s not been updated.

- Kalpesh Sampat of SPF Realty

In a rising rental market, many tenants hold onto the property despite receiving the landlord’s 12-month notice, as per RERA Law, to evict the unit upon completion of the notice period, as the owner intends to sell his property. It has led the landlords to file a complaint against the tenant with RDC.

If a tenant is evicted and the owner decides not to sell the property, Article 26 may apply to prevent the landlord from renting the property for two years. If they rent it out, the evicted tenant has a right to apply to the RDC to recover compensation from the landlord for any loss they suffered due to the eviction. Equally, the RDSC can consider evidence from the owner that he attempted to sell the property in good faith but did not occur for a genuine reason.

- James Baldwin, Senior Associate at Taylor Wessing

More proof on selling plans

In many cases, landlord are being told to furnish more proof that he is indeed planning to sell the property. According to Shaukat, “The RDC considers the landlord as trying to evict the tenant to rent the property again at a higher rate. But a clause in the Law bars landlords from renting the property for two years if the landlords have evicted tenants through a court notice to sell the property.

“The tenant, if they discover that the landlord has rented the property to another tenant at a higher value after being evicted, can approach RDC.

“Our concern is a big gap in rents, leading to the landlord needing a vacant property to sell to an investor purchasing the unit. With the existing rent on that property being low, by around 40 per cent, a landlord can’t sell his property at the right price if there is already a tenant renting the unit at a low rent.”

Selling the property after an eviction
Under Article 25(2)(d), a landlord in Dubai may demand tenant eviction upon expiry of the tenancy contract if he wishes to sell the property. “The landlord must notify the tenant at least 12 months before the eviction date through the Notary Public or by registered mail,” said James Baldwin, Senior Associate at Taylor Wessing.

“The L&T Law does not require the landlord to prove that he is selling the property when he serves the notice or at any time before the eviction. For example, by showing it is being advertised for sale or arranging viewings.

"In practice, to obtain the best sale price, an owner may want to evict the tenant and carry out some maintenance or improvement work before they take photos and advertise the property for sale. Also, an owner may prefer the property to be vacant when potential buyers view the property rather than when a tenant and their belongings occupy it.”

An extended legal process

For the rental returns to be better for an investor to buy, the property is supposed to be vacant/rented at market price. According to Muhammad Naqeeb, Marketing Manager of Sky Bay Realty Brokers, reckons more time needs to be given to hear evidence from both sides in a rental dispute. “It has become more of a judicial process and costly,” he added.

If you don’t hire a good lawyer, chances are you may not be able to win even if you are the aggrieved party.

- Muhammad Naqeeb of Sky Bay Realty Brokers