Tuesday, March 18, 2014

Dubai property market is recognized for its profits. Whether you are investing to flip or rent, you may earn profits in the form of regular rental income or reselling assets on higher prices. After showing gradual recovery from economic downturn in year 2012, asset market completely recovered in year 2013. Further the winning bid to host an intentional event Expo 2020 has significantly increased the value of this Middle Eastern city in the eyes of prospective investors and entrepreneurs. The huge number of people visiting this city has increased the demand of Dubai property for rent. The emirate has already possess plenty of accommodation options like hotels, resorts, serviced, studios and hotel apartments to execute the needs of tourist. Moreover, the event is expected to generate more than 277,000 jobs in UAE, which can eventually increase the number of expats coming Dubai for job. Such employment and economic outlook will positively increase the demand of short term leasing accommodation in the city.

The increase in demand in residential properties for rent gives clear signal to developers to supply more property units. However, city developers have already been initiated projects across the emirate and most of them they are going to deliver before this event. Having considered the rising demand of short term accommodation, landlords can think to increase rents. Some of the experts have predicted that sky rocketing property prices and rents may lead to another property bubble. In order to avoid another property bubble, His Highness Sheikh Mohammed bin Rashid Al Maktoum has issued a new Decree No. 43 of 2013. 

About the new Rent Cap

According to the Decree No. 43 of 2013 landlords of public and private sectors are allowed to increase rent to a certain extent. The primary aim is of implementing new rent cap is to benefit both tenants and landlords.

The new decree has allowed tenants to increase rents of their property units to a certain limit. Maximum 20% increase is allowed on annual basis. Previously landlords were not allowed increasing rent upon renewal if the difference between existing leasing amount and current market rates is less than 25%. The new decree has reduced this edge for rising rents to 10 percent.

The new cap law has come into effect on 18th December 2013. Instead of public and private sectors, the law is applicable on free zones and Dubai International Financial Centre as well. It is applicable upon lease renewal after considering the difference between the property rental value and the average market rate for properties in specific city communities. Average rent rates in market are set according to rent index which is produced and updated by RERA Real Estate Regulatory Agency on regular basis. 

Layered Structure of Rent Cap

The Articl1 of the New Decree gives complete layered structure of new rent cap to establish percentage increase in rent upon lease renewal. Below is the brief description of new rent cap.

  • If a property rent is less than 10% below the average rental rate in market no increase is allowed.
  • If the difference in existing property rent is between 11% and 20% below the average rental rate in market 5% increase is permitted.
  • If the difference lies between 21% and 30% below the average market rental rate maximum 10% rent increase is permitted.
  • With the difference between 31% and 40% below the average rent rates in market total of 15% increase is allowed.
  • For more than 40% below the average market rental rate maximum 20% increase in rent is allowed.
  • In spite of this argument, that the New Decree for rent cap is totally in the favour of landlords, it has been implemented and tenants and landlords are supposed to understand its connotation to better prepare their leases.

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