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The emirate's rent cap of 5% had been in force until the end of 2008 and there had been speculation over whether it would continue to cover the sector, especially given the reversal of the recent enormous price increases seen during the past year.
The city's real estate market has suffered a dip as many investors and projects have become affected by the fall out of the wider financial crisis, with units in developments such as Business Bay losing up to 40% of their value.
Industry analysts have predicted that real estate prices will continue to soften until the middle of the year before beginning a slow recovery.
In addition to this a number of new housing units are coming online, creating additional apartments as demand dries up.
There had been uncertainty over the role that Rera's pricing index, compiled at the height of the pricing boom in late summer 2008, would play in the property sector. Conflicting media reports first said that it would be a compulsory benchmark, and subsequently that it was just to serve as an indication for landlords.
Rental pricing benchmark
The new decree states that the index, which gives a higher and lower average for most commercial and residential properties, will serve as a benchmark.
For those paying from 25% below the index or upwards, rents for 2009 will remain frozen at their current rates. For those paying less than the 25% allotted 'cushion', landlords will be able to reserve the right to increase rents, in line with guidelines laid out in the decree.
'The 5% rent cap is no longer in place,' Rafat Abu Al Haija, from legal firm Al Tamimi and Co told AME Info. 'The Amiri Decree No1 for 2009 has put in place provisions for the maximum amount by which rent can be increased. The maximum that it can go up by is going to be 20%.'
Rents that are up to 25% less than the lowest band of the Rera average will remain frozen. Beyond this rents will go up by 5% for every ten percentile difference, up to a maximum of 20% to ensure that long term tenants are not hit with excessive increases.
Therefore, for rents that are between 26% and 35% below the index price, leases can be raised by 5%. For those that are between 36% and 45% below, 10%. For those between 46% and 55% below, 15%. Beyond 56% below the Rera index, a 20% can be applied.
Index based on new rental contracts
Although anecdotal evidence has rents in Dubai beginning to soften already, as more properties become freed up and units that cannot be sold as prices continue to fall are placed on the rental market, most existing contracts already lie below the benchmarks set by Rera - whose index was compiled as an average for new tenancy contracts.
'This [drop in rents] is not something that happens overnight,' Ron Hinchey, regional partner at Cluttons, told AME Info, 'it could take up to two years. But I can see them coming down by up to half within two or three years. It was unsustainable before.'
The Rera index places the annual rental value of two and three bedroom apartments in the Greens at Dhs168,000 to Dhs180,000, and Dhs200,000 and Dhs260,000 respectively. Villas in the Arabian Ranches vary between Dhs320,000 and Dhs350,000 for a four bedroom and Dhs380,000 and Dhs400,000 for a five bedroom unit.
Three bedroom apartments in the Marina vary from Dhs220,000 to Dhs300,000, compared to Dhs240,00 to Dhs350,000 in the Jumeirah Lake Towers.
Four bedroom villas in Jumeirah average rents of Dhs340,000 to Dhs410,000 annually, while three bedroom flats in Mankool command Dhs150,000 to Dhs200,000.
See also:
Rera's rental price index in full
Dubai property prices to continue falling 'until Q3'
Edward Poultney, Editor - English
