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Press Dossier    By Date   07/04/2024 Updated Rera index in Dubai: When will tenants face higher rents?

Khaleej Times, Sun, Apr 07, 2024 | Ramadan 28, 1445

Updated Rera index in Dubai: When will tenants face higher rents?

Emirates: Many landlords in Dubai have started increasing rents upon renewal of their tenancy contracts after the Real Estate Regulatory Authority (RERA) updated its rental index that allowed property owners to increase rents to bring them in line with the market value.

Industry executives, however, say that many tenants in the emirate will not have to pay higher rents until later this year or early next year when their current tenancy contracts end. That is because RERA guidelines state that landlords can only increase the rent at the time of tenancy renewal.

In March, the Authority updated the index which is expected to see up to a 20 per cent increase in rental value for tenants in the emirate. This revision in the index is said to impact those tenants who have been staying 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 tenants 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 large disparity between the market prices and those that 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, at the time when their current tenancy ends,” said Kugendran.

In the UAE, many tenants look 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 higher rents under the new RERA Rental Index will come into effect later this year or early next year.

Relocating or buying property

Previously, a growing number of tenants were choosing to renew their leases, given they could often renew at a much lower price than they could find 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 been consistently rising for the past three years and this trend continued in the first quarter of 2024. However, rental increases have 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 increasing rents in developed areas, tenants have opted to move to neighbourhoods with lower rents.

“While rents may rise in certain areas, the movement of tenants to cheaper neighbourhoods 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 many property owners are surprised to learn that renting a property with the tenant may not be the most advantageous 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 executives say that there has been a sharp increase in landlords seeking rental valuations to increase the rent over the past year as both tenants and property owners are more knowledgeable and savvy about the RERA Rental Index.

Starting April 1, 2024, Anisha Sagar, director of property management at Allsopp & Allsopp Group, said landlords are now required to attach a judgment or the 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 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.

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