At the beginning of January, Rera (Real Estate Regulatory Agency) provided their now annual update on the Rent Index, used by both tenants and landlords to rate the value of their rental property. For empty properties this is nothing more than a guideline and rental values are open to negotiation from both parties.
Its real influence is for incumbent tenants. The Rent Index is used to rate rental values against an average price for a specific area; for example, Dubai Marina, Jebel Ali Gardens or Al Ghusais. If a property is considered undervalued, then the landlord has the right to increase the rent on a sliding scale against the percentage it is undervalued, provided they give the tenant the correct notification as set out in the laws of Dubai.
The Rent Index is displayed in bands. For all areas in Dubai there is an upper and lower band, with the Rent Index marked on an average of the two to give an exact dirham value for each property. Each band is relevant to the exact number of bedrooms in the property.
As Dubai is constantly expanding, and the Index is only updated once a year, Rera states that if a certain area is not listed, then prices should be derived from the nearest possible location that is.
The Index itself is not perfect, and no one claims that it is, but it has been designed to work for all properties in Dubai, and used as a best fit scenario without being overly complex.
The latest update
Its update has narrowed the upper or lower, and in some cases both bands in a number of areas. This ultimately gives a lower reading. For example, for a one-bedroom apartment in Jumeirah Village, the bands have been narrowed from Dh55,000-Dh80,000 (Average Dh67,500) to Dh55,000-Dh70,000 (Dh62,500). This is a net decrease of 7.4 per cent.
It has been replicated throughout Dubai, although, unfortunately, not in Business Bay or Downtown Dubai where the average has increased by around 2.5 per cent for one-bedroom apartments. Larger properties throughout Dubai have either remained stable or decreased in value.
What does this mean For the rental market?
Will your rent go down? Put very simply, no, it is unlikely. In essence all that this means is that rent increases will likely be less severe if at all.
If your property is overvalued according to the Rent Index, then your landlord is not obliged to decrease the rent. That will all come down to negotiation. As we have said in the past, the only way a landlord will reduce the rent is if they see the possibility of a tenant leaving and them not being able achieve the same return.
The only time it is worth a tenant threatening to move or actually moving is if they can find a rent that is at least 10 per cent cheaper than what they are currently paying. This takes into account agents’ fees, deposits (for the property and utilities) as well as moving costs too.
Rents will only decrease on a larger scale on a gradual basis. As we saw in 2015, the rate of decline in yearly rents was slow and steady. This will continue throughout 2016 as the property market continues to mature.
Ultimately, this time next year we are likely to be looking at another decrease in the Rent Index. For now, any decreases will have to be negotiated, while tenants will need to keep an eye on listings in their area to get a better understanding of their bargaining power.
The writer is the Managing Director of www.propertyrights.ae. The company deals with tenants and landlords on rental rights.