The year of rental diplomacy

Disparity between market realities and the residential rent index issued by the Real Estate Regulatory Agency (Rera) will further increase the burden on an already inundated Rent Committee, Rera admitted yesterday.

Real estate agents, however, added that landlords would do their best to keep disputes away from the committee, as it "favoured tenants and tarnished landlords' portfolios".

"I don't have the statistics for the number of cases currently with the rent committee, but after the decree on the rent index was passed I can see the number increasing. This is natural since the index is new and people will want to seek clarity if they are unable to reach a mutual agreement on rental prices," said Mohammed Khalifa bin Hammad, Director of Rera's real estate regulatory department.

The rent index was first released as a mere referral guide for market rents, but later legalised by a decree issued by the Dubai's Ruler Court, calling for parity between old and new rents.

Melissa O'Gorman of Links Real Estate said landlords would pay little attention to the index and instead let market realities dictate rents. "Landlords do their own research. A few months ago, they would dictate prices. But today tenants will not only determine rents they will also change the method of payment. From a one and two-cheque payment system it has progressed to a 12-cheque system," she said.

"With heavy mortgages and shrinking rents, landlords are at the mercy of tenants," O'Gorman said, adding that this would mean rents dropping further.

Landlords had mixed opinions about the index. "It is a very positive move, but it has come a little too late and the timing couldn't have been worse," said M Reddy, a technology consultant who has put two houses in The Springs and one in Burj Residence on lease. "While I am already collecting decent rent, I feel for those who have lived in Dubai for long. Those staying in Old Dubai will suffer from the 20 per cent hike. I understand the need to bring old and new rents closer, but increasing expenses at a tough economic time like this is disastrous," he said.

Rera's Hammad agreed. "There will now be a balance between landlord and tenant. If the tenant refuses an increment, it will go to the rent committee. If a landlord goes beyond the prescribed limit, it will once again go to the rent panel. There's parity for all."

Hammad said the next rent index would be released in June 2009. "We take actual lease contracts into consideration when bringing out the index. So June's index will depend on the market realities in May, while studying the rates from this month onwards," he said.

Hammad was concerned about those that will be affected by a 20 per cent rise in rents but added that the number of people actually in that bracket was minimal and suggested that landlords go easy on them. "I'd tell my landlord not to increase my rent," he said.

Mack Dubois, a businessman and landlord, said they would do what is financially right for them. "If I've been collecting seriously low rents, I will take advantage of the decree, since tenants must understand that it is also a tough time for us. However, if the difference is a mere five to 10 per cent, I will not increase rents. We all understand the current situation and are not in it to hurt anyone," he said.


Who wins and who loses?

- LANDLORD

Satvinder Sandhu, 36, business consultant

Property: 3 bedroom apartment, Jumeirah Beach Residence

Current Rent: Dh220,000

Rent Index: Dh250,000

"I signed a lease that had a two-year lock in. According to the law, I cannot increase my rent until this contract expires. In any case, the index's recommendation is just 10 per cent higher. In tough times like these, I wouldn't ask for more rent. People collecting lower rents but paying higher mortgages will definitely be affected, but this is a current global predicament, and the rent index may help them just a little."

- TENANT

Stuart Rayer, 33, teacher

Property: Three bedroom villa, The Springs

Current Rent: Dh120,000

Rent Index: Dh260,000

"We took our villa on rent three years ago at Dh80,000. Every year our landlord has diligently abided by the rent cap and as a result our rent is Dh120,000 today. Our contract comes up for renewal in July, and we are hoping that our landlord will continue to be as reasonable as he has been in the past. I think, with higher rents, it probably makes more sense to buy your own property today. Since sales prices have dropped drastically, I cannot think of a better time to buy."

- LANDLORD

M P B, 32, banker

Property: One bedroom apartment, Jumeirah Lake Towers

Current Rent: Dh120,000

Rent Index: Dh120,000

"I gave this apartment out on a year's lease last year. This year, despite the rent index stating that what is being paid is fair, the tenant wants to renegotiate. I refuse to take it down. Given that many units are lying unoccupied, he feels he'll get a better rate. So he's free to do so. I hope I can find someone to take it at the same rent, since the market is pretty bad. Otherwise, I will move into the apartment myself in June, when the lease where I'm currently staying expires."

- TENANT

L Vase, 34, businessman

Property: One bedroom apartment, The Palms

Current Rent: Dh180,000

Rent Index: Dh150,000

"The rent index has left me smarting. I always knew I was paying an exorbitant rent, but that's what the market price was. Now, we have the rent index saying we can save Dh30,000 a year, but only on paper. It's unfortunate that we can't renegotiate our current lease. We did speak to our landlord and he has assured us that he will drop the rent when our contract comes up for renewal in March. Obviously, he could change his mind since as per the law, he can make the current rate stick."


Resolving disputes

Dubai tenants whose rents are higher than the recommendations of the new residential index are being advised to renegotiate with their landlords, as they have no legal recourse.

This directive was underlined recently by Mohammed Khalifa bin Hammad, the Director of Rera's real estate relations regulatory department. When asked if tenants could approach the Rent Committee if they were paying more than the index value, he said plainly: "That is not possible."

A landlord, on the other hand, has the option to take his tenant to the committee if the tenant is paying less than the suggested index price. However, the maximum that a landlord can raise rents by is 20 per cent, even if the raised rent remains below the index's recommendations.

Meanwhile, the economic downturn is expected to help tenants, as landlords are tighter on cash than they used to be, so they might be open to a slightly reduced offer.

The initial step to be taken before any dispute arises is to ensure the landlord has registered ownership of the property with the Land Department and the tenant has registered his rental agreement with the Rent Committee.

One point to be noted while considering your rental situation: It is in the landlord's best interest to renegotiate with the tenant outside the legal process because they want to avoid being blacklisted by developers – the more a landlord is hauled before the rent committee over a dispute, the more he weakens his credibility when buying future houses.

To give residents an idea of the discrepancies out there, Asteco found studio apartments in Discovery Gardens can be leased for Dh62,100 per year, one-bedrooms for Dh90,000 and two-bedrooms for Dh121,500.

Rera's index puts the rents at Dh72,500, Dh100,000 and Dh137,500, respectively.

Rents for three-bedroom apartments in The Greens are 29 per cent higher than market rates, according to the index. The four-bedroom villas on The Palm are available for Dh495,000 compared to Rera's recommended Dh450,000.

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