Understanding Dubai's Surging Rental Market: Insights for Real Estate Investors
Dubai, known for its luxurious lifestyle and iconic infrastructure, has become a hotspot for global real estate investors. The city's property market has seen significant surges, with rental rates skyrocketing, leading to heightened disputes between landlords and tenants. The increase in rental prices has incited opportunistic behaviors, with parties attempting to exploit each other to reap maximum benefits.
Despite this tumult, Dubai's regulatory authorities, particularly the Real Estate Regulatory Agency (RERA), established under the provisions of Law No. (16) of 2007 concerning the establishment of the Real Estate Regulatory Agency and amended recently by law number 4 of 2019 concerning the regulations of the Real Estate Regulatory Agency have implemented various measures to safeguard the interests of all stakeholders.
Most articles on the same subject are focused on the tenant side. To illustrate, the eviction of a tenant from the real property by a landlord before the expiration of the lease contract is permissible only under specific circumstances, as outlined in the relevant provisions stipulated in law number 26 of 2007 regulating the relationship between the landlord and the tenant, amended by provisions of law number 33 of 2008 and its executive regulations. Moreover, the Landlord shall serve a Notice on the Tenant through a Notary Public or by registered mail.[1]
It is evident that there are not many articles that explain the escalating rental issues from the Investor’s perspective and that’s why I wish to provide insights on how Investors should behave and protect themselves from potential manipulations.
As a landlord, understanding the market dynamics is crucial to ensuring you're not duped by unscrupulous individuals. Over the past few years, rental prices in Dubai have surged due to increased demand, a growing economy, and favourable investment conditions. The CBRE[2] Dubai Residential Market Snapshot noted that Average rents have grown by 28.5% in the 12 months to January 2023, Dubai’s highest rental growth on record. Over the same period, average apartment rents have grown by 28.8% and average villa rents by 26.1%. As of January 2023, the average annual apartment and villa rents reached AED 98,307 and AED 290,242, respectively. Although this escalation might seem beneficial for landlords initially, it has fuelled an environment rife with deceit and exploitation.
Landlords should keep abreast of market trends and maintain transparency in their transactions. Misrepresentation or withholding of information can lead to legal complications and damaged reputation. It is essential for every landlord to be aware that Decree No. (43) of 2013 specifies the maximum percentage of rent increase for real property lease contracts during the renewal process in the Emirate of Dubai.[3] Regular market research, discussions with other landlords, and consultation with experienced lawyers and real estate experts can help you stay informed about the prevailing rental rates, and how can you legally benefit from your properties in a correct and fair manner not to be exploited by a greedy realtor or a piece of poor legal advice.
The Real Estate Regulatory Agency (RERA) plays a pivotal role in shaping Dubai's real estate landscape. The legislation explicitly outlines that one of the primary objectives of RERA is to contribute to the development of the real property sector by implementing a comprehensive set of regulatory and supervisory procedures. These measures aim to enhance the sector's role in the Emirate's overall economic development while acknowledging that this objective is not limited to this aspect alone.[4]
As an Investor/landlord, being acquainted with RERA regulations is not just advisable but indispensable. RERA lays down guidelines for rental increases, brokerage obligations, owner’s association rights and obligations, and much more.
In recent years, RERA has further tightened the regulations to counter burgeoning rental disputes and opportunistic practices. The parties are now required to register their rental contracts with Ejari[5], an initiative by RERA to regulate and facilitate the rental market. This system, which was established through the provisions of Law No. 26 of 2007, effectively regulates the relationship between landlords and tenants in Dubai. The EJARI electronic registration web service has been specifically designed to fulfill the requirements of the law and RERA’s vision of establishing a resilient regulatory system for the rental market while ensuring the protection of the rights of all parties involved. The Ejari system offers a comprehensive range of services that go beyond the registration of the initial lease agreement. It facilitates the logging of lease renewals, cancellations, transfers, and terminations.
Furthermore, RERA's rental increase calculator provides a benchmark for fair increases, offering protection against arbitrary hikes. Such service is available online and it is free of charge for landlords and tenants. The rental calculator works in accordance with the RERA rental index which is updated yearly and the rental recommendations in the index are valid for all rental properties in Dubai, for the entire year.[6] The RERA rental increase calculator enables landlords and tenants to input property details and receive results indicating whether a rental increase is applicable. It is highly recommended that landlords consult the rental calculator to ensure compliance with the law when contemplating a rental increase, thus ensuring adherence to legal boundaries. It is the correct guidance for rental increases regulating all rental renewals whether for residential or commercial properties.
Landlords failing to comply with these regulations might face penalties, including hefty fines.
For instance, landlords hold the right to request a security deposit from tenants, with the understanding that the deposit will be returned upon the conclusion of the lease. In the event of a landlord's refusal to return the security deposit, tenants have the option to file a complaint with the rent dispute centre for a final resolution. Or in the case of eviction (tenant notice to vacate Dubai), tenants are required to provide a twelve (12) month notice stating the reasons for eviction before the scheduled eviction date[7]. If landlords prevent tenants from accessing the property without serving a legal notice, tenants can approach the local police station and file a complaint with the rent dispute committee to seek compensation for any resulting losses.
It often happens that the landlords are pushed by realtors to increase the rents disregarding the laws and the regulations and favoring exploiting the tenants for financial gain over being in compliance with the regulations. The Real Estate Regulatory states that the landlord must provide a 90 days notice regarding any changes to the tenancy contract’s terms, breaking the contract, or increasing the rent amount.[8] Tenants can legally refuse a rental amount increase if a 90 days notice was not provided by the landlord. Moreover, The tenant can file a case with the Rent Disputes Centre (RDC) at the Dubai Land Department (DLD) upon refusing to agree to the new terms of the contract, which can result in undesirable consequences for landlords in the form of financial losses. As evident, understanding the risks of not following the law is important!
Also, RERA has introduced another product called The Certificate of Rental Valuation. This certificate is issued by RERA (Real Estate Regulatory Authority), which is an essential document that determines the fair rental value of a property in Dubai. The rent valuation service, according to DLD, allows customers to request a rental valuation for a real estate unit. Landlords and tenants can request the service online at dubailand.gov.ae. Or via the official DLD mobile app.[9], This certificate serves as a reference point in disputes related to rental increases and ensures that the rental price is in line with the prevailing market rates. However, its main role is to find out the current market value for the rental of similar property as of the date of issuance.
The important point to note is that the valuation quoted is for a vacant property.
Your rented property is not vacant, so it doesn’t matter what the rental price valuation is because it cannot be deemed relevant for renewal situations. So, it should work for any new contract that shall be signed, and not for renewal of contracts as it should be only a reference, the sole calculation and reference for how a contract shall be renewed should be the RERA rental increase calculator. There is a huge misunderstanding in the market about this point but the results of a lot of disputes confirm my interpretation of the difference between both parameters.
Obtaining the Certificate of Rental Valuation involves a simple process. Property owners or tenants can apply for this certificate through the Dubai Land Department's official website. (https://dubailand.gov.ae/en/eservices). Once on the site, navigate to the 'Services' tab and choose 'Certificate Services', then select 'Rental Valuation Certificate'. The service charge for this certificate is AED 120.
Drafting a fair and comprehensive rental agreement is another important step in protecting yourself as a landlord. The agreement should outline the rental price, duration, renewal and termination clauses, maintenance responsibilities, and all other necessary conditions. Article 4 of Law No. (33) of 2008 specifies the essential elements that must be included in the Lease Agreement It mandates that the contractual relationship between a landlord and a tenant be governed by a written Lease Contract that is duly signed by both parties, which includes a description of the leased Real Property that leaves no room for uncertainty, the purpose of the Lease Contract, the name of the owner, the number and type of the land, and the area where the Real Property is located. It shall also determine the term of the Lease Contract, the Rent, and the Rent payment method. This legal document can serve as your defense in case of disputes or non-compliance by the tenant.
It is advisable to involve a legal expert while drafting this agreement to ensure it aligns with RERA guidelines and local laws. Any form of deceit or manipulation, such as hidden clauses or unreasonable conditions, can lead to legal repercussions and harm your standing in the market. In certain instances, tenants may violate regulations set by owners' associations or Dubai Municipality, leading to potential penalties imposed on the property owner. In this case, it is advisable to incorporate a clause in the agreement whereby the tenant explicitly agrees to abide by the rules governing the residence. This clause should emphasize that the tenant bears full responsibility for any violations thereof.
Many Investors/landlords are themselves, tenants when it comes to their work office or sometimes to their own homes. As the Dubai rental market grows, so do the disputes between landlords and tenants. Some common disagreements revolve around rental increases, property maintenance, non-compliance with agreement terms, and eviction procedures.
For example, the verdict issued by the Rental Disputes Settlement Center in the Emirate of Dubai, dated 18.04.2023 in Case No. 3563/2023, concerns the rent dispute for the year 2023. In this particular case, the owner has put forth the following requests: eviction of the tenant, payment of utilities, and payment of the current rent.
The owner's claims were grounded on the expiration of the lease agreement, providing substantial grounds to support a ruling in their favor.
The Rental Disputes Center's reasoning was as follows, in accordance with Law No. (26) of 2007 Regulating the Relationship between Landlords and Tenants in the Emirate of Dubai and Law No. (33) of 2008 Amending Law No. (26) of 2007 Regulating the Relationship between Landlords and Tenants in the Emirate of Dubai Where the term of a Lease Contract expires but the Tenant continues to occupy the Real Property without any objection by the Landlord, the Lease Contract shall be renewed for the same term or for a term of one (1) year, whichever is shorter, under the same terms of the previous Lease Contract.
However, Article 25 outlines specific scenarios in which a landlord is authorized to request the eviction of a tenant from the real property.
In light of the provision in the law that mandates automatic renewal of the lease agreement and the absence of any circumstances permitting the owner to evict the tenant, the Rental Dispute Center dismissed the owner's request for eviction.
As evident, Investors should address these potential issues proactively to prevent complications.
Open communication with tenants can be instrumental in reducing disputes. Addressing their concerns, providing clear instructions, and maintaining a professional demeanor can foster a healthy landlord-tenant relationship.
In case of conflicts, landlords should strive for amicable resolutions, and if necessary, involve a third-party mediator or RERA's dispute resolution center. Article 32 Law No. (26) of 2007 establishes the right for the landlord and tenant to involve a third party if they mutually agree in the lease contract or any subsequent agreement to resolve any arising disputes. In such a scenario, it is imperative that neither party takes any action that would impede the real property or alter the rights and responsibilities outlined in the lease contract. Furthermore, as outlined in Article 3 of Decree No. (26) of 2013, the Rental Disputes Centre (RDC) is entrusted with the responsibility of adjudicating rental disputes. It also aims to establish a swift and straightforward procedure for resolving such disputes, with the overarching goal of promoting social and economic stability for all individuals involved in the real property rental sector and its associated sectors[10].
As the rental market becomes more lucrative, it has also attracted scams and fraudulent activities. Common scams include bogus tenants, advance rental frauds, subletting without permission, and false property listings. These matters have the potential to give rise to conflicts between landlords and tenants, resulting in substantial financial and legal problems. The UAE Public Prosecution has issued a stern warning, emphasizing that the dissemination of false and deceptive advertisements can lead to severe consequences such as imprisonment and substantial financial penalties. According to Article 48 of the Federal Decree-Law number 34 of 2021, Offenders found guilty of misleading consumers through fraudulent advertisements can face fines ranging from AED 20,000 to AED 500,000.[11]
In this particular instance, it is imperative to highlight the fraudulent activities associated with famous property management company. Both tenants and landlords fell victim to this property management company, which absconded from the country after deceiving individuals and absconded with nearly AED 48 million in advance deposits, fees, and rent payments. The scam involved promising of high returns through rental income from sub-leasing the properties at higher-than-market rent. What occurred, in reality, was quite the opposite.[12]
Due diligence in tenant screening can help uncover potential issues early. Checking references, verifying income sources, and meeting the tenant in person can provide insights into their reliability. Additionally, landlords should remain wary of tenants offering unusually high rental prices, as they might be bait for potential scams.
As a landlord and a tenant in other scenarios, I often feel there is a huge gap between the regulations and the understanding of the stakeholders. There should be a way to explain and educate everybody to avoid such a waste of time and money on conflicts.
While the escalated rental market in Dubai poses challenges for Investors/landlords, tenants are equally affected. From arbitrary rent increases to disagreements over property maintenance, tenants may find themselves in a precarious position. However, armed with the right information, awareness of one's rights, and resources provided by the UAE government, tenants can navigate through these challenges effectively.
Despite best efforts, disputes may sometimes arise between landlords and tenants. In such situations, it's essential to keep calm and seek a fair resolution. I always advise finding a way to amicably resolve such disputes and find a middle ground. However, if a fair resolution is not achievable then RERA provides a Dispute Resolution Centre for such situations, offering an impartial platform to resolve conflicts. The Dispute Resolution Centre follows a well-defined process to ensure fair and speedy resolutions.
As an Investor/Landlord or a tenant in Dubai's burgeoning rental market, staying informed and proactive can help you navigate through any challenges and protect your rights effectively. Familiarize yourself with RERA's guidelines, participate actively in crafting a fair rental agreement, and use available resources like the rental increase calculator and the Dispute Resolution Centre to address any concerns or conflicts. Remember, your rights as an Investor, a landlord, or a tenant are protected, and with the right information and resources, you can be a success in Dubai's rental landscape.
While the market surge might incite greed and manipulation, a diligent and fair approach can ensure sustainable returns and a robust landlord-tenant relationship. It is critical to remember that while capitalizing on market opportunities is desirable, maintaining the integrity and ethical standards is non-negotiable in the long-term success of your real estate endeavors in Dubai.
The upswing in Dubai's rental market has given rise to myriad opportunities and challenges. The surge in rental prices has made the market lucrative but has also incited opportunistic behaviors and disputes.
Everybody must stay informed, understand regulations, draft fair agreements, mitigate disputes, and avoid potential scams. And remember, it is never too late to call your lawyer. However, sometimes it can be too late.
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