Freeze 'will balance rental market' but tenants wary

Dubai: With the five per cent rent cap scrapped in Dubai, replaced by a rent freeze for 2009, landlords must be careful not to hike rents, industry analysts say.

Rents for tenants whose contracts were signed in 2008 cannot be raised this year as long as the rent is equal or up to 25 per cent lower than the average market rate, according to Decree No 1 for 2009, issued by His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai.

The decree applies to residential and non-residential properties.

"The cap was helpful several years ago. However, in this new market, it may be worth allowing the economy to steady for the next few months," said Laura Adams, leasing manager at Better Homes. "Our worry is that landlords may assume the rent cap is a sign that rents are rising when actually, they're falling. As such, they may market their properties at higher rents than the tenants in the market are willing to pay."

While details of the decree are yet to be cleared, it is a firm step on the road to a more balanced market.

"At face value, the decree looks applicable across the board. There isn't great clarity, but effectively it's frozen rents but allowed the market to find its level," Vincent Easton, director of sales at Sherwoods, said.

Easton also said that the rent freeze is good for the consumer as it gives them a greater degree of protection.

While this is good news for tenants paying through the nose, for those currently paying well below the market rate, the new decree will come as a blow.

"This is where the 25 per cent below the market rate comes in. But what is below the market rate? You have to go back to the index," Easton added.

The law also states that for low rents, specifically, rents for the coming year can be raised as long as the rent for 2008 was up to 25 per cent less than the average market rate.

The average market rate may be seen in the rental index, recently released by Dubai's Real Estate Regulatory Authority.

However, many tenants say this decree gives more power to landlords to hike rents as high as they wish.

"The increase will affect only the old tenants in Dubai whose rentals are much less compared to the existing new rentals. It is not clear how much a landlord can increase his tenants' rental to bring it on par with the 'less than 25 per cent of the average rental'. The bigger question is will a tenant be able to afford the new rental hike demanded by the landlord?' a Dubai tenant said.