The Real Estate Regulatory Agency (Rera) yesterday unveiled its first official rental price index for commercial properties for Dubai and said it may remove the need for a rent cap in the emirate.
"This index is for guidance, not regulation. This will enhance transparency in the market and help investors to have a solid idea of what rent should be in the near future based according to the official statistics," Rera Chief Executive Officer Marwan bin Ghalita said in a statement.
On January 6, Emirates Business reported that the rental index for residential and commercial units was ready and was awaiting the Royal Court's approval.
According to Rera, the evaluation process for all types of properties is based on giving each property points for various attributes such as building facilities, nearby retail outlets, age and condition of building, etc. These points are used as the statistical basis to set a minimum and maximum average rent price.
Dubai offers higher rental yield than any other real estate market in the world. The government has already had to impose rental caps and now there is hope that the rental index will remove this need, Rera said.
The regulating agency said: "This is a guidance, but it will force landlords not to set whatever they want as a rental price based on their own wishes because in the long term they will lose."
According to a person close to the matter, the rental index for the residential units will be released within the next two weeks, once it is approved by the Ruler's Court. "The regulations on how to use the index are being finalised and will be issued soon," he said.
Rera plans to release the index every six months but may make that quarterly if necessary, the person said.
Rera "has taken vast international expertise" to develop the methodology behind the index and "is confident that it will boost transparency and confidence in the rental market", bin Ghalita said.
Mohammed Khalifa bin Hammad, Director of Real Estate Relations Regulatory Department for Rera, said: "We will constantly update this rental price index to match market factors and changes. This index will stop owners from putting the rents too high in the market. Rera has been putting yearly rental caps in place for studios, one-, two-, three- bedroom apartments and villas. This index will serve as a measurement to show a fair price for each unit and will be used by developers to evaluate the rent income of the projects and the feasibility studies."
Hisham El Far, CEO, Coldwell Banker, said: "The rental index is unlikely to help. The idea of the index was to have a mark-up; however, now the rents have started to come down.
"I believe that Rera has been a little bit late in coming out with the index. Had it been issued last year, it would have certainly helped the market. However, it serves as a good guideline for the future."
El Far added that there are a lot of offices and commercial space available in the market, which is leading to a decline in rents.
Even for the residential market, landlords are becoming more flexible allowing tenants to pay in four, six or even 12 cheques compared to last year when they were taking the rent in one cheque, he said.
"Rentals have gone down in the past few months by almost 15 per cent. We expect them to go down by another 20 to 30 per cent in the coming months… so the market rate currently is much lower," he said.
Elaine Jones, Chief Executive of Asteco, said: "The index, if treated in the correct context, can be very useful. However, we must be mindful when analysing commercial rents that in addition to the base rent for the premises there may be a service charge, fit-out charge or cost, car park costs etc. When determining the cost of premises we need to take all factors into consideration.
"The more data that is published the better. The registration of leased contracts in future will be beneficial as the data will be precise. The registration fields include municipality area, size of property by rooms, overall square footage etc. People will able to hone down to precise information about specific properties and the history of the data will show the trend for that property.
"When we know the profile of the occupant, the method of payment, the number of installments the amount of rent, service charge, number of car parking units etc and most importantly the average occupancy level over time we can build up a bank of information to help us identify the type of property that is required by a certain profile of occupant in a certain area."
According to Jones, the more information that tracks the market movements over a time the more beneficial it will be.
"We have had significant fluctuations in our market due to so many events over the past 30 years that we have already tracked. At the end of this year we can review how world events have impacted us versus say the 12 months following other significant events in 1980 or 2001. Information, if used in the correct context will enable us to make sound decisions for the future. However, the more information that tracks the market movements over a time the more beneficial it is."
According to Minc Properties Chief Executive Haroon Mahmood, the introduction of the rental index is "slightly mistimed".
"There is significant correction taking place in the property sector and I'm a bit frightened that the index may artificially inflate prices. However, the idea is a good move but it must not be a de facto tool to fix rents."
Mahmood believes the index should be released at half-yearly frequency. "The market is changing very fast and so it is necessary to release an updated index on a regular basis. Moreover, in a constantly changing market, a rent cap does not make sense," he said.
Nicholas Maclean, Managing Director, CBRE Middle East, said: "To have any form of records published in the public domain is a good idea as people can determine and make a better decision of where in the country they want to occupy.
"By having public records, it will make tenants decision-making much easier as they can now differentiate throughout the emirates.
"The one previous concern was that there was not enough differentiation between location and buildings. However, with this transparency, tenants can make better decisions," he added.