Dubai fixes rent cap on contract renewal

22 December 2013/KhaleejTimes Shaikh Mohammed issues decree on Saturday to regulate rental price increases. Rent paid on Dubai properties that falls drastically under the average market rate could go up as much as 20 per cent under strict new criteria, in a revision to the existing rental cap which has been described as “win-win” for landlords and tenants. His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, issued a decree on Saturday to regulate rental price increases, effective immediately. Hike as per market value > 1-10% less than average 0% > 11-20% less than average........... 5% > 21-30% less than average           10% > 31-40% less than average           15% > 40% or more............. 20% The previous cap, introduced in 2008, ensured rent could not go up more than five per cent in the first two years starting from the commencement of the lease. But legal consultants Ashish Mehta & Associates managing partner Ashish Mehta said prior to the new decree — which gave “absolute clarity” — it was unclear how much rent could go up by after the second year. While the practice was generally not more than five per cent, cases that ended in front of the Rent Committee could have different results, depending on how much below market value the rent was. “Before it was at the discretion of the Rent Committee, now it is very clear, this decree overrules any ambiguity if any...because now we have the provisions of the decree... it eliminates any ambiguity.” The new rules — issued in the wake of the World Expo 2020 win which has been variously predicted to drive runaway rental prices — dictate different caps in respect of how much under the market rate a property is being rented out at. If a property is being rented at a rate which is 41 per cent or less under the market value — or the “average similar rent value” — a landlord may increase rent by up to 20 per cent; if the rent value is between 31 to 40 per cent less than market value, a landlord may increase the rent by 15 per cent; rents that are between 21 to 30 per cent lower than market value can only go up by 10 per cent; rental values that are between 11 and 20 per cent less than market rates can be adjusted by five per cent; while any rental properties that are within 10 per cent of the market value cannot be adjusted at all. The Dubai Media Office tweeted: “The decree applies to landlords from the public and private sectors in the emirate of Dubai including private development areas and free zones.” It also explained that according to the decree “the average similar rent value” of a property would be determined by the Real Estate Regulatory Authority’s (Rera) rent index. The office tweeted that the government statement encouraged Rera to continue to standardise rent regulation across all property owners and properties in Dubai. Mehta said even in the situation where rent was increased by 20 per cent, the property would necessarily still be rented out lower than market value. “It’s a win-win situation for the landlord and the tenant...a win for the landlord because if you are a certain percentage below the Rera index this decree allows you to come up to (it), and a win for the tenant because this is still linked to the Rera index...so the tenant cannot be exploited by the landlord.” After Dubai won the Expo 2020 bid, Anwar Lakdawala was just one who wrote on Twitter while it would spell good news for the economy, “the rents and cost of living will also sky rocket, and salaries might not”. State news agency Wam reported that Shaikh Ahmed bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee as well as of the UAE Expo 2020 Bid, fired a warning to residents along with the announcement of the decree. “The (Expo) win is a testimony to the success and hard work on the part of the people of Dubai and its government in building a city that can boast an open economy and free trade. “It is now all our duty to ensure that Dubai continues to offer great opportunit(ies) for business and living,” he said. Mehta said while he did not think the decree was purely related to the Expo bid, rent was one of the main components of an expatriate’s expenses, and the latest decree gave some assurance rent would remain capped. “The perception may be that the government will allow the market to overheat so this decree also restricts the real estate rental market from overheating.”