Rent cap may slip through Rera index

Landlords still not registering contracts on Ejari to allow true tracking of prices

Dubai has capped rents for this year thanks to the Decree No. 2 / Year 2011, issued on Thursday.

However, the ruling may well give your landlord the chance to increase your rent by much more than what the cap allows.

Real estate experts told Emirates 24|7 that despite the fact that Real Estate Regulatory Agency’s (Rera) rent index is based on actual rental transactions in Dubai, a number of landlords and agents are still not registering contracts on Ejari, the e-registration portal system, says an industry expert.

“For the index to be effective, landlords and agents need to get contracts registered on Ejari. Enforcement of registration is absolutely necessary since the index is the only one based on actual transactions and is not influenced by any commercial interest,” says Mohanad Alwadiya, Managing Director, Harbor Real Estate.

The decree, which is effective 10th January 2011, caps the increase in property rents in the emirate. Article 2 of the decree endorsed Rera’s rent index as the main reference to determine the average rent in the emirate.

Previously, it was not mandatory for landlords to follow the index for rent hikes.

According to the decree:

If the rent is 26 per cent to 35 per cent less than the average rent for a similar property, the maximum increase shall be equivalent to 5 per cent of rent value.

If the rent is 36 per cent to 45 per cent less than the average rent for a similar property, the maximum increase shall be equivalent to 10 per cent of rent value.

If the rent is 46 per cent to 55 per cent less than the average rent for a similar property, the maximum increase shall be equivalent to 15 per cent of rent value.

If the rent is 56 per cent to 65 per cent less than the average rent for a similar property, the maximum increase shall be equivalent to 20 per cent of rent value.

A check on Rera’s rent increase calculator reveals that the index does reflect market reality, with rent for a studio, one and two-bed apartment in Discovery Gardens being in the range of Dh25,000 to 35,000; Dh40,000 to Dh50,000 and Dh55,000 to Dh75,000, respectively, per year. Rent for a studio apartment in International City is in the range of Dh15,000 to Dh20,000 per year, while one bedroom apartment is available between Dh22,000 and Dh25,000 per year.

However, no details are available on new districts such as Dubailand, which are fast becoming affordable residential hubs.

“It is probably because the units have been recently handed over and the area is still under development. As more contracts are registered on Ejari, the index will be updated,” says another realty agent.

A notice on Rera website still urges landlords and real estate leasing and management companies to register rental contracts on the Ejari or face penalties for non-compliance.

In October, Christiane Murray, Head of Property Management, Landmark Properties, told this website that Rera can impose penalties of up to Dh50,000 in case of non-compliance with the Ejari law. Besides, tenants will not be able to get Dewa, du or etisalat connections as well.

Alwadiya urges: “It needs to be updated quarterly and reveal the number of transactions closed in a quarter for all the localities with some specifics of the property such as unit size.”

Mohammad Khalifa Ahmed bin Hammad, Director of the Real Estate Relationship Regulating Department, Rera, told this website in April 2010 that the rental database that will become available through Ejari will inevitably be utilised by the government and the private sector.

“Certainly, the trendlines shown by the data collected will be reflected in the rental index and will have a crucial role to play in updating it. It does not stop there of course. The information about details such as rental levels in specific areas and for certain unit types and the demographics of use will prove invaluable to government planners and private sector investors alike,” he said.

 

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