Shaikh Mohammad issues decree on rent hike caps while renewing tenancy contracts

Future rent increases in Dubai will be decided by a weighted average of what properties in that particular area command rather than an arbitrary demand by a landlord. It applies equally to residential and commercial realty in the emirate.

This will be the natural result of a new decree issued by His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai. The Decree, No. 43 of 2013, sets a specific band on how the optimum rental increases that a landlord can demand while renewing leases.

The new rental slab will not allow landlords to raise rents on renewals if the current lease is only 10 per cent lower than the average rent of a similar property.

It will be applicable to private and public sector owned properties in Dubai, as well as — pertinently enough — within the free zones. The Decree thus brings the future setting of lease terms and renewals more in sync with the Dubai Rent Index brought out by the Real Estate Regulatory Agency.

Landlords can raise rents on renewals by:

    5 per cent if the earlier rental is 11 to 20 per cent lower than the average rent for a similar property;
    10 per cent if the rental is 21 to 30 per cent lower than the current going rates for properties of a similar scale;
    15 per cent if the rent is as low as 31 to 40 per cent than comparable ones; and
    20 per cent if a property’s rental is more than 40 per cent less than the average.

In a statement, the Dubai Government emphasized the need to abide by the new regulations. The Decree takes effect from the date of issue and will be published in the gazette.

“There were several controls already in place, such as the rent cap, to ensure landlords could not arbitrarily hike rents on renewals,” said Niraj Masand, partner at the real estate services firm Banke M. E. “The creation of the rental slab and the strict parameters on when and by how much hikes can be effected will have a significant impact on market dynamics.”

The latest announcement is seen as part of a series of steps taken by the Dubai Government to ensure that the momentum build-up within the real estate sector is managed well and does not lead to an overheated environment.

It was in late September that Dubai reconstituted a court — under the aegis of the Land Department — exclusively given to handling rental disputes, for both residential and commercial properties.

There were concerns in the local property sector that the city winning Expo 2020 would place additional stress on rentals. New businesses and new professionals coming in would lead to saturation demand on available property stock, which would then lead to landlords to demand more.

Now, with the rental slab and its link-up with the rental index, landlords’ leeway in setting the terms of renewals is circumscribed to an extent.

Will this mean a doing away with the rental cap? While there has been no statement on the same, market sourced believe with the new leasing renewal structure in place, the rationale for a cap is no longer there.