Real estate agencies are looking to claim their commission on rental contracts from landlords and not from the tenants, or may even split it between the two parties, agents told Emirates Business.
Currently, tenants pay a five per cent commission on the annual rent to brokers.
"All broker firms have not yet started splitting the brokerage commission between the landlord and the tenant, but are considering this option as the rental market has turned in favour of the tenants, especially as leasing is always initiated by the landlord," said Iseeb Rehman, Managing Director, Sherwoods Real Estate.
Although he did not confirm whether the commission from tenants would be lowered or waived, Reh-man said in due course commissions will be made payable by landlords for lease contracts. "We will not totally waive the commission payable by the tenant as the workload and paperwork of agents has increased," he added.
Rose Marie Kilzi, Leasing Director, Great Properties, said internationally the commission is split between the landlord and the tenant, and that should be enforced soon. "If the landlords are willing to pay up, many agents will surely waive the commission from the tenants. Only if it is waived from the tenants, and the landlords are not paying commission either, leasing agents will not make a profit, especially since most leasing agents in Dubai are compensated on a commission basis and not on a salary basis. Either one party has to pay or both split the commission. Either way, landlords should get involved," she said.
Walter Hart, Managing Director of The Agency, a property consultancy, said typically around the world it is normal practice for the landlord to be charged commission by the agent and there is nothing wrong or unusual about this.
"The mandate to rent a property comes from the landlord to the agent, and the landlord has employed the agent to do a job for him and therefore should pay for this service when a tenant is found. Dubai has been different in this regard due to the previous short supply of residential accommodation and commercial space. Given that the situation is rapidly changing now, and that supply may exceed demand for some time to come, it is very natural that landlords will be prepared to pay agents to help them find tenants," he said.
Hart said in some countries there are separate agents for landlords and tenants and each is paid by their respective clients when a deal is made. It is not normal practice, and indeed against the law in many countries, for agents to be paid by both parties – this naturally can cause conflict of interest.
Peter Penhall, Chief Executive, Gowealthy.com, also said the swift change in demand and supply has allowed the tenants to be very selective in their property needs. "The tenants have the allowance to be more demanding with respect to the terms and conditions of their accommodation requirements. In addition, landlords are now more flexible to accommodate the tenant by means of lowering the rental value and offering more frequent rental payments, all to secure an income flow and to reduce their vacancy exposure," he added.
Penhall said the commission values are calculated in direct relation to the rental values and that the current rental values are now at a very attractive level, which allows for tenants to continue paying the agents' commission.
According to broker firms, a further 10 to 15 per cent drop in rents is expected in next three months.
"Rental values in the market in Dubai will have to come down to global levels. We foresee a further reduction in rental prices by 10 to 15 per cent in the next quarter," said Rehman.
Kilzi said: "In general landlords are sticking to the Rera index and only some are more flexible when it comes to their properties and are willing to rent it out at low prices to cut their losses."
According to Ala'a Nagawa, Business Development Director, Leo Sterling, the Dubai Government has put in place a series of measures to curb soaring rents in the residential and business sectors and the ejari is one such system with respect to online application developed to register and standardise all rental contracts.