The Dubai government is currently contemplating a recommendation proposed by the experts to lessen the challenges faced by the business community in these troubling times when cash is flowing more slowly into the business, and everyone is struggling to stay afloat. The proposal suggests a no-rental hike stipulation for three years after a lease contract is signed between the landlord and tenant. The Dispute Resolution Committee is considering such a plan. Still, no decision has yet been taken regarding the matter of if and when the proposal is to be rolled out, states a Dubai Land Department’s spokesperson.
The spokesperson also added that right now, all rental decisions are hinged on the Dubai Rent Index, and it will proceed to be so till the three-year no-hike plan is executed. At the moment, Sharjah is the only emirate of the UAE that has this proposal in place as the authorities there grant a three-year cut-off on new contracts before considering any rental increases. And it is a big success there.
However, the three-year-cut-off on new contracts is still in the proposal stage in Dubai as it always follows the guidelines issued by the Rental Index system. Therefore, it is still uncertain whether the Dubai Land Department will determine if the recommendation will just extend to residential properties or would involve all types of real estate categories, including commercial and retail premises. If it were to convert into a comprehensive policy, then it would have a massive application on all of the retail divisions. Whereby retailers have complained eloquently in the past on how mall directors set and raise rents without any warning or reason, even though the market situation does not dictate them.
The proposal comes as Dubai includes a slew of new economic reforms directed at enticing ex-pats and foreign investors. Among the present measures, Dubai intends to grant long-term visas of up to ten years. It is also approving new budget employee insurance policies to help maintain talent and attract investors.
Foreign investors will be able to control and own a company in the region completely- a notable departure from the present policy, which limits foreigners to a forty-nine stake in entities outside free zones, requiring them to forge partnerships with stakeholders from the Emirates.
Why is this Rent Freeze or Suspension considered?
In the last several years, Dubai has observed many developments both in its infrastructure and in the influx of new investors flocking into its shore the likes of which were never witnessed before. Because of this, the supply for residential areas has increased manifold; on the other hand, the demand has slowed down considerably as the foreigners are not interested in staying in the emirate for a long time. According to a study conducted in the UAE, rental rates have dropped by a whopping eleven percent compared to last year alone.
If this trend remains in Dubai, the real estate industry of the region may suffer, landlords would be forced to decrease rental fees. Lower-income will lead to fewer people being inspired to initiate new business in Dubai. Hence, the Dubai Land Department deems this three-year rent suspension as one of the potential solutions for this dilemma. It shall benefit not just the landlords but also the tenants.
Does this help?
With the three-year contract in place, the landlords are granted with a possibility to earn continually for three years. Simply put, this three-year- rent-cut-off policy allows landlords a means of guaranteed Return On Investment and consistent cash flow.
At the same time, tenants would experience and benefit from a fixed rental charge for three years, assisting them to avoid getting hit by the continuous rental raise. Consequently, helping in budgeting.
Both landlords and tenants could conserve more time and money as they only are required to renew their contract every three years or so.
Is it needed?
A few specialists and experts argue that this three-year rent freeze or suspension might not yet be wanted as of now. Even though it may admittedly promote financial stability for landlords (who mostly are UAE citizens, and hence are the UAE government’s priority) and tenants( who mostly are foreigners and therefore are the primary source of income), it also could potentially lead to other difficulties. For instance, if you have a rented studio space, that a couple has borrowed from you, but during the first year, they get an additional member joining their family. So, the small studio apartment may not be sufficient d=for them anymore, resulting in them leaving the space to go for a bigger and better option before their three-year lease was up. Thus, leaving you in a lurch as you have to start the process of looking for a suitable tenant all over again
Three years could be a lengthy time for a contract. A tenant could have an unanticipated event happening in their life, that could affect the contract. Or a tenant may suddenly decide that a three-year deal is a bit too inflexible for them. Or any number of circumstances can occur that may hinder you in signing a suitable tenant.
Why Do some experts think it serves the tenants more?
Tenants are benefiting from a soft real estate market, with landlords being the ones under constant stress. Although there might come a day when the market turns in favor of the landlords, and rents again hike up. But till that day comes, experts still think that the three-year rent freeze benefits the tenant more because a landlord cannot demand more money just because the circumstances have changed since the contract was signed. So, it also allows tenants to enjoy lower rent rates for a long time even after the market has turned in favor of the owners, thus allowing the tenants a bit of a reprieve before they have to spend more.
And in recent times, it is apparent that when markets do turn around, they turn around quite quickly; and rents are one of the first things that get affected by them.
With a three-year rent cap, a renter would identify their precise expenses for rent over the next 36 months, hence helping them in planning ahead, which is essential to fulfilling their business ambitions and targets.
How can KWS Middle East Help?
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