Dubai: Are landlords in Dubai telling you to go for a two-year rent lock-in contract on that new home? Even if the rent on offer seems absolutely reasonable, tenants are better off negotiating on a year-by-year basis.
Because right now, residential rents are headed in only one direction – and that’s down. Based on market feedback, new contracts since June have on average 8-15 per cent declines, depending on locations and tenants’ willingness to look at a wider range of communities or high-rises. And there’s no guarantee rents are going into stability mode any time soon.
That being the case, “Why would any tenant want to commit to rent lock-ins of two years if they expect rates to continue to fall,” said John Stevens, Managing Director at Asteco. In fact, what is happening right now is a willingness by landlords to allow short-term lease extensions “while tenants look at their options,” said Stevens.
This way, the landlords gets to pull in rents for a few additional months even though the original lease contract has ended. These days, guaranteed income even for a couple of months matter. Plus, landlords will have more time to scout for new tenants.
Flexibility is the theme
In fact, in Dubai’s residential rental space, there is more of a give-and-take attitude on the part of landlords and tenants. This is most evident in the case of early termination of lease contracts as well. “We have seen a many landlords provide rent-free or rent deferrals,” said Prathyusha Gurrapu, Head of Research and Advisory at CORE, the real estate consultancy.
“Landlords are even willing to allow concessions on early termination of leases – but provided tenants can show the necessary documents to show loss of employment or salary reductions.” (In normal course, such early cancellations on a rental comes with a two-month penalty.)
Landlords confirm there is no let up in the number of requests they receive from tenants requesting penalty waiver on early lease terminations (or even rent payment delays). Most of them are willing to consider such requests given the unprecedented nature of the situation they - and their tenants – are facing.
“Only two things matter for a landlord these days – that their property remains occupied and they can clear the cheques received from tenants,” said a senior official at a property leasing firm. “If a property remains unoccupied for even two to three months, it could alter the rental demand and values.
“No one can ignore the number of new properties being completed and pushed into the rental market.”
Landlords may, however, get some relief in the weeks ahead. Going by the first six months’ data, the pace of handovers of new properties is slowing down, according to Asteco. Between April to end June, there were 4,200 new homes added against 5,750 units in the first three months.
Even if the pace picks up between now and end of the year, it’s unlikely to record major improvements. As it is, “Research reveal that approximately 20 per cent of previously tendered or under construction projects have been put on hold - temporarily or indefinitely,” according to a recent Asteco update. (In the 12 months to end June, Asteco estimates that apartment rents in Dubai are down by 13 per cent, and comparable to the average decline seen on villas.)
It “anticipates this pattern is likely to prevail, 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 on employment.”
Split them up
Landlords would do well to keep close watch on the job market – any further volatility there will have repercussions on their future income. To offset tenants’ burden, landlords are committing to multiple cheques, with six- and even 12-month payment options being offered. As long as the cheques keep coming in… and getting cleared, they are fine.
Even landlords are learning to work on a month-by-month basis.
The third quarter will be a funny time because there is a lot of catch up to be done after the COVID-19 quarter. So data is going to be unclear - ask again in Q4-20, then the data will be valid