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10 June 2023

UAE tenants may enjoy upper hand in rent negotiations


By Ryan Harrison and Safura Rahimi

With little sign of this year's rent cap, conflicting speculation of falling and rising prices, and no publication date for a long-promised rental index, it has never been a more uncertain time to be a tenant in Dubai.

But experts agree that, amid all the confusion, tenants have rarely been in a stronger position to renegotiate their rent downwards.

As the global financial crisis affects the emirates, more tenants are downsizing, stripping away demand for high-end rentals and depressing prices further.

Recent job losses have added to the number of properties on the market. Add to this an expected flood of new units being completed, and the outlook for reduced rent looks positive. However, as banks tighten restrictions on loan and mortgage applications, more people may choose to rent in the short-term, thereby strengthening the rental market.

Meanwhile, tenants are still awaiting clarification from the government over this year's rent cap and the proposed index, both of which could change the rental landscape in Dubai dramatically.

"Rent prices have softened recently and are likely to ease further as traditionally a lot of units are released onto the market by developers at the start of the year," said Firas Maskji, Branch Managing Partner at Dubai-based real estate broker Conqueror.

"Last year, tenants couldn't negotiate rents with landlords, but now they are in a stronger position and are asking for more flexibility on the number of cheques they pay and the rental price."

He said a four-bedroom villa in Jumeirah Beach Road four months ago could have been rented for Dh450,000 a year. Now a landlord would be lucky to charge Dh350,000.

Also driving rent depression has been the evacuation of sharing expats under the government's "one-family, one-villa" rule, he said.

"Landlords knew before that they had a group of people, so could charge more. Now, with the government's new evacuation policy the landlords cannot expect one family to pay so much. They are instead dropping rents to entice them."

Some 32,000 units are expected to appear on the Dubai market in 2009, according industry officials.

Michael Grant, a partner at property consultant Cluttons, said: "We are seeing a lot more product coming onto the market in places like Jumeirah and Umm Sequim, possibly in part due to the end of villa sharing, as well as new schemes completing, which is creating an over-supply and reduction in rents.

"Rents in Dubai are either coming down or due to come down. However, it should be remembered that they increased dramatically during 2008, so to look at a decrease over the past six months shows a substantial drop, but often still no decrease in rents of a year ago, so it depends upon how far back you calculate."

He said the apartment rental market is still holding up in prime areas, where rents have not yet decreased, such as Burj District, The Greens and Dubai Marina.

Fran, a 47-year old Canadian sales executive living in Dubai Marina, said: "I would love to stay in my apartment but the problem is the rent is extremely high. With the market coming down, and the possibility of being able to pay in more cheques, I am going to talk my landlord to see if he can lower the price or go for multiple cheques. Otherwise I'll have to look for another apartment."

Fran, who spoke on condition her second name was not published, moved into the three-bedroom apartment six months ago and pays Dh195,000 rent a year. The landlord hiked the price up from 180,000 when she couldn't pay him one cheque.

"I'm going to see how far the prices drop before I speak to my landlord," she added.

Grant said life is better than it was for tenants in areas where rents have come down as there is more choice on the market. He added: "We're seeing people saying to their landlords if you don't reduce the rent we'll vacate.

"A tenant whose contract renewal is coming up should contact a reputable agent and ask what they have that's comparable," he said.

Camilla van der Merwe, Head of Leasing for Dubai at real estate consultancy Asteco, said if people were happy in their present properties there might be an opportunity to negotiate with the landlord, but this will be on a case-by-case basis.

"There are always hidden costs to moving which most people do not factor into any perceived saving, for example changing of schools, removal costs and fixing and repairing any damages when they move out," she said.

"At present the rents remain fairly stagnant, we foresee that there might be some correction in the asking rentals for 2009 due to developers handing over finished apartments and units over the next twelve months. This correction will be less noticeable in the villa market as there is a limited supply of good quality villas for rent across the UAE and this will continue through 2009.

"Dubai currently has a rent cap of five per cent for 2008, which the government has not yet renewed or amended for the New Year. So far the rent cap still remains in place, however, it has not been renewed yet. At this stage there is no indication whether there will be changes for 2009," she said.

Dubai's new rental index – expected to be a benchmark in solving rental disputes in the city by providing a base to calculate rents – has also been completed and is currently awaiting approval, the Real Estate Regulatory Agency (Rera) said this week.

Rera said it will not be mandatory for landlords to follow the rental index, however it will set a range for residential and commercial units that people can use when comparing rents in different parts of Dubai.

"How useful the index will be depends on how it is structured. We have had no indication of this yet, but we anticipate that it will provide excellent independent data across all markets," van der Merwe said.

Speculation is also rife among real estate agents that the regulations are in the offing to allow tenants to pay rent monthly and avoid hefty lumpsum demands from landlords. The majority of expats who are on the market after being kicked out of sharing arrangements have been unable to afford the common one or two cheque requests from landlords. But plans believed to be under discussion to force owners to accepts more flexible instalments would make renting more expensive for all, agents said.

A 12-cheque solution would stabilise the falling prices as the number of eligible tenants could outstrip the available units, they said.

Maskji added that there were discussions under way to adopt a new ruling by March. "The flood of people on the market looking for rentals that can't afford one or two cheques a year would suddenly have affordable places to stay, eliminating excess demand."

This would of course counteract predictions that Dubai's rent price depression is to continue.

Grant said despite these rumours, the high-end segment of the market is also witnessing falling rates. Some agents say rents in Dubai could see a correction of up to 30 per cent for high-end properties by the end of the first quarter of 2009.

"We are seeing a slackening of demand on high-end properties, especially larger villas in places such as Emirates Hills and the Green Community.

"In the past four months companies have become more cautious and there haven't been the major CEO packages on offer. This could mean they are giving someone a smaller housing allowance.

"There is also a lot of talk of downsizing, so we are seeing more demand for apartments. For tenants this is not cheering news of course," said Grant.