Are Dubai's rental price control mechanisms about to change?
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Are Dubai's rental price control mechanisms about to change?

Are Dubai's rental price control mechanisms about to change?

At the beginning of 2008 the price cap governing Dubai rental contracts was lowered from the original 7% down to 5%, in an effort to combat the continuing inflationary pressures felt in the real estate sector. But this has had the side effect of widening the gap in rental demands between established residents and new arrivals to the city.

    Perhaps prompted by concerns of income freezes by those looking to invest in property in Dubai, the emirate's Real Estate Regulatory Authority (Rera) has been said to be considering prescribed leases.

    These would run for a fixed term, allowing landlords to then reset rental contracts at, or near, current market value.

    This initiative would fit in with the comprehensive residential price survey currently being undertaken by Rera.

    The scheme is designed to give landlords and tenants a clear indication of property values in different communities.

    'There has for some time been talk of Rera issuing a standard form or prescribed leases for residential and commercial premises,' says Alexis Waller, partner in the property department of law firm Clyde & co.

    'These would be for three and five years respectively. Until then, current practice for residential letting remain, for the most part, as one year renewable contracts.'

    It is uncertain when, or if, the initiative will be officially unveiled, although Rera usually tests legislative changes on select market segments prior to rolling them out.

    Guidelines for rent increases

    Currently, the price cap prohibits landlords from raising rents above a set boundary.

    This works in the tenant's favour, but has drawn notice that property owners cannot profit from the housing price boom that the city is witnessing.

    Even those who enjoy the protection from inflation that the cap offers are often unsure of the specific details, with no clear idea of how often increases can be enforced.

    'Under the new Dubai Landlord and Tenant Law, a landlord must give a tenant two clear years rent without increase,' explains Waller.

    'Any increase on renewal after that is subject to the applicable rent cap law, which currently stands at 5%, although it is always possible for the Rent Committee to order otherwise.'

    The new rent law also errs on the side of the tenant when it comes to terminating existing contracts.

    'Under Dubai's Landlord and Tenant Law, landlords have to give 90 days notice if they don't want to renew; but even then can only require a tenant to vacate the property under certain circumstances set out in the law. Similarly, landlords wanting to terminate a lease during the lease term can only do so in certain circumstances.'

    Homeowners right to residency

    Another issue causing uncertainty in Dubai's real estate industry, across all sectors, has been the lack of clarity over whether or not home ownership confers the right to a residency visa.

    Some investors had been under the impression that visas would be issued automatically, an issue that has been brought under the spotlight through the visa changes being unrolled this month.

    'Developers were never in a position to 'guarantee' residency rights,' says Waller.

    'While some developers say that they will assist or try to procure visas, ultimately the decision over whether one is issued, and the criteria that need to be met, is decided at a federal level for the UAE as a whole rather than any individual emirate.

    'Any buyer will always be subject to meeting applicable immigration requirements and policy on the types of visa available, and these can change.'

    See also:
    Listen: Dubai residential rent increases slow down
    Dubai average price index
    UAE Cost of living report - Accommodation
    AMEinfo Staff

    AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.

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