“So, how much have your rents dropped?”
Over the last 14 months, and even before the pandemic showed up, this has been the trending topic for UAE residents residential rental declines swept across the city. No single location was immune, because there would always be one or more landlord willing to drop his asking rate. It has now reached a point where in the same building located in a freehold community, different landlords could be offering different rental terms.
And it’s starting to happen more frequently as winning a new tenant or retaining an existing one has become one difficult task. For tenants, it’s about finding they are holding all the aces in this particular game – and bragging about the “unbelievable” rent drop in the latest contract renewal has become another talking point for many residents.
Are rent drops still happening?
Yes, they are. In the year to date, there have been further rental declines at Discovery Gardens (by around 5 per cent), Jumeirah Village Circle (around 4 per cent) and in JLT by 3 per cent), according to the consultancy Core. Much the same is happening with other prominent locations in Dubai, while in Sharjah, tenants are basking in the near 10 per cent drop that many parts of the city recorded during 2020.
In its latest property market update, Asteco stated that rents in some of the most popular locations in Dubai and Sharjah have dropped to levels last seen in 2011. But now, each quarter will see thousands of more homes getting delivered. Or waiting for a new tenant to show up…
Better to move or renew?
According to market sources, those residents moving into new rented apartments are getting the benefit of a three-year rate lock-in. More landlords are offering that incentive upfront – and this could be a win-win for both parties. The tenant gets to have surety on his expenses, and frees him from having to worry about any sudden increase in rental demands – if the market takes a sudden upturn and landlords start asking for more.
This is what happened during 2011-12 when a sudden rush of demand saw Dubai’s property values and rents make a sharp recovery from the depths of the 2009 Global Financial Crisis. Landlords were quick to extract higher rents once they realized the recovery was sustained. This lasted well into 2015, before corrections started setting in again.
Last year I paid Dh70,000. This year, my landlord dropped it to Dh60,000. I was tempted to move to a villa, but I have decided to stay back and save.
This time, tenants are playing it smart on their new rental contracts. They are insisting on – and getting – terms where rental hikes can happen only at the end of three years.
Landlords too are seeing the benefits from doing so. Rather have the assurance of a three-year rental term than worry about more drops happening each time a new tower gets handed over in the neighbourhood.
Monthly payments or 1 cheque?
Pay by the month? Or in one go? Or would sticking with the decades-old four cheques a year still the best option?
In a marketplace where tenants are getting most of what they want, the option on the frequency of rental pay offs is also theirs to make. While there aren’t that many landlords willing to take 12 cheques, quite a significant number of them are comfortable with six.
Here, it’s more of a mindset issue than anything. Rather than set aside a sizeable sum for the quarterly or half-yearly payout, it’s less of a stress for the tenant to make those payments every month… or every second month.
“The pandemic has completely altered the household incomes – one member of a family could have lost a job, there could have been salary cuts,” said one property consultant. “It’s up to the tenant to decide what sort of payment terms he or she is comfortable with.
“Yes, there’s talk about landlords willing to take 12 cheques, but it’s not as prevalent as in the West. But landlords are willing to make compromises rather than stick to the one upfront payment and three additional cheques. The rental market is changing, and so are the cheque requirements.”
Credit cards too
Last year, Aldar Properties – as much a landlord as it is a developer – aligned with leading banks in Abu Dhabi to offer its tenants opportunities to pay off using their credit cards. This after the COVID-19 crisis broke out and it suddenly became clear that this was impacting heavily on incomes. Again, it was about easing the mind of the tenant by giving him more options.
Market sources say that the Aldar move proved a hit with residents in the communities owned and operated by it. Many had expected that other developers would clamber on board with similar options for their tenants. But based on market feedback, there haven’t too many of credit card linked payment options. Developers and landlords clearly prefer to do it with cheques.
Big on rent-free
Until now, this was more of an incentive that landlords were willing to offer to tenants in commercial properties – offices, retail units, etc. But now, in a market feeling the full impact of rent declines and more homes to be filled, landlords are extending rent-free terms in the residential space as well.
A new tenant can ask – and get – an additional one month as free stay as part of the contract. Possibly, two or even more, if he is willing to commit to a longer duration at the property. Rent-free terms – of up to six months - are also showing up more frequently for luxury home leases, where rental declines have been less pronounced. (When these units are being rented for Dh500,00 and more, landlords can afford to be slightly more lenient…)
Mid-year changes in contracts
Amidst all the changes in the rental space, on one aspect there’s been little of it. Landlords have not been receptive to tenants – residential and commercial – asking for changes midway through their contract. Even when these tenants were dealing with an unprecedented crisis as the pandemic.
I asked my landlord for a discount and he gave it to me just like that. This is a huge saving - I have had a salary cut and paying a lot on my petrol as I have a sales job. So any saving goes a long way.
Landlords were at best offering deferments, not full waivers on rentals, even for tenants with whom they have had longstanding arrangements. “It was as if landlords have a mental block on making changes to existing contracts – even if meant they risk losing these tenants once the contract gets over,” said a leading jewellery retailer who had tried – unsuccessfully – for some relief on his staff accommodation contracts.
This is what other tenants have been repeating through 2020, as they struggled to cope with salary cuts and job losses. With market conditions heading into some stability, these landlords now face the risk of losing their tenants… and having to wait until a new one turns up.
In some cases, they are forced to offer the new tenants the very same terms they had refused to give their previous tenants. (Belated wisdom does come at a cost…)
- A rent-increase freeze on your contract for up to three years
- Rent-free month or months
- Up to 12 cheques or at least 6 cheques for ease in rent payments
- Deferral of rent if going through a financial crunch due to the pandemic
Are rents actually increasing?
Across the board, the chances are remote. More so if Dubai sees another 35,000-45,000 new homes delivered this year. And even if more tenants in Sharjah decide to make a home in Dubai, there’s still plenty left over. Not to mention the impact it will have on Sharjah rentals…
Nivedita Sharma and her family recently moved to a three-bedroom villa at Akoya Oxygen off Al Qudra Road. The intention was to save as much on rent as possible. “Our business has taken a massive beating owing to the pandemic,” she said. “ Akoya Oxygen was a very attractive option.”
A three-bedroom en-suite villa (unfurnished) is renting for around Dh45,000. The family were previously staying in a similar three-bedroom villa in The Lakes where rents are asking Dh195,000 on an average. “You can imagine the massive saving we are having - Akoya Oxygen offers one of the cheapest villas in town.”
In the UAE’s property market, the bargain chasing is well and truly on, whether it’s to buy a home or rent it.