Many landlords in Dubai have begun increasing rents upon renewal of residency contracts after the Real Estate Regulatory Authority (RERA) reworked its rental index, allowing property owners to extend rents to align with the market value.
Industry leaders, however, say that many residents in the emirate will only have to pay more increased rents later this year or early next year when their present tenancy contracts end. That is because RERA guidelines comment that landlords can only increase the rent at the time of renewal.
In March, the Authority revamped the index, which is predicted to see up to a 20% increase in rental value for residents in the emirate. This modification in the index is said to impact those tenants who have been dwelling in the property for more than two years.
“We have seen rising rents in the Dubai real estate market for some time already. However, when tenant s have chosen to renew their tenancies, guidelines set by RERA have heavily restricted how much landlords are allowed to increase the rent. In some cases, this led to a significant disparity between market prices and long-term tenants’ pay.
“The revisions to the rental index by RERA allow more landlords to raise rents, with many being able to increase the rent by a larger percentage than before. This will lead to higher rents for many tenants who renew their tenancies, closing the gap with market prices. But this will be coming after years of low to no increases,” said Alois Kugendran, general manager for real estate at Huspy.
“RERA guidelines state that landlords can only increase the rent at the time of tenancy renewal. This means that tenants whose contracts were renewed since the revisions to the rental index have already seen their landlords raising their rents. However, many tenants will not face higher rents until later in the year or into 2025, when their current tenancy ends,” said Kugendran.
In the UAE, many tenants are looking to relocate to new homes at the beginning of the year; therefore, many tenancy contracts will be renewed either at the end of 2024 or early 2025. So, these increased rents under the new RERA Rental Index will come into outcome later this year or early next year.
Relocating or buying property
Previously, a growing number of renters were selecting to renew their leases, given that they could often renew at a much lower price than they could discover a new rental property in the market.
“However, given that these revisions to the rental index are expected to close the gap between renewal prices and market prices, we expect to see a growing number of tenants seeking a new rental property at the end of their tenancy, or choosing to buy a property instead,” added Kugendran.
Rents have consistently risen for the past three years, which continued in the first quarter of 2024. However, rental growth has slowed down for the past couple of quarters.
“We anticipate that rental increases will slow down as new housing supply comes onto the market in the second half of this year,” he added.
Karun Luthra, vice president for global operations at Foremen Fiefdom, said as landlords are raising rents in grown areas, tenants have opted to reposition to neighbourhoods with lower rents.
“While rents may rise in certain areas, the movement of tenants to cheaper neighborhoods helps balance the rental situation. This may result in rental prices not rising as much as expected overall and being mitigated. However, it’s important to keep in mind that rents can still rise in areas already high in demand such as JLT, Jumeirah, Al Barsha 1,” said Luthra.
How much can the landlord increase rent?
Alina Adamco, head of sales at Metropolitan Homes, said multiple property owners are surprised that renting a property with the tenant may not be the most beneficial deal.
“While market forces might suggest raising the rent immediately, landlords must adhere to the Rental Calculator. This calculator limits rent increases to approximately half the difference between the current rent and the calculated market value,” she said.
According to Adamco, here’s a breakdown of the allowed hikes:
- Less than 10% below market value: No increase allowed
- 11% to 20% below market value: 5% increase permitted
- 21% to 30% below market value: 10% increase permitted
- 31% to 40% below market value: 15% increase permitted
- 41% or more below market value: 20% increase permitted
She added that previously, the rental estimates favoured tenants, allowing them to stay in properties for extended periods without facing significant rent hikes. “Moving out to find a new, potentially cheaper place wasn’t as attractive as the minimal or non-existent rent increase upon renewal and the associated costs and effort of shifting homes. However, effective March 1, the rental calculator now reflects current market rents. This adjustment empowers landlords to align their rental prices with the market. However, landlords must notify tenants of any rent increase via registered email 90 days before the current lease expires,” said the head of sales at Metropolitan Homes.
Rental valuations
Industry managers say there has been a substantial increase in landlords aiming rental valuations to increase the rent over the past year as tenants and property owners are more familiar with and savvy about the RERA Rental Index.
Beginning April 1, 2024, Anisha Sagar, director of property management at Allsopp & Allsopp Group, said landlords must attach a judgment or a legal order to apply for the rent evaluation service.
“For the last 2-3 years, both the tenants and the landlords have been a lot more savvy in the market with the rental index and rental valuations. For the last 6-12 months, we have seen a sharp increase in landlords turning to rental valuations to increase the rent. This is where the landlord would be in disagreement with what the rental index was showing, so he would pay for a rental valuation to be done. The rental valuation would supersede the rental index. Against that backdrop, whilst we have seen an increase in landlords looking to increase, it’s not as many as maybe you would think,” said Paul Kelly, operations director at Allsopp & Allsopp Group.
