Wednesday, July 30, 2014
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Living in Dubai

Rent Cap in Dubai

Before 2006, the property market in Dubai was quite volatile. Rental costs were constantly changed arbitrarily at the owner’s discretion. From 2006, however, the Dubai Government decided to introduce rent caps as a way of stabilizing the property market in the Emirate. This move was applauded by property market players who viewed it as a critical step in promoting market stability and confidence.

Beginning 2006, the first rent cap law was passed by the Dubai government. The law limited rental growth up to maximum of 15 percent. A second rent law later fixed maximum rent increase to an even lower level of 7 percent. This law was made applicable for both residential and commercial properties. However, there are few exceptions that permit rental increases to exceed 7 percent.

Few basic rules about rental increase cap

First of all, landlords and tenants need to be aware that RERA (Real Estate Regulatory Agency) regulates the relationship between landlords and tenants.

When making any property transaction, always deal with only a registered broker or agent.

Only a resident of Dubai can sign a lease deed and connect the utility services.

The tenancy contract should be governed by a written tenancy contract deal with all relevant information to be registered in RERA by Law. Else, neither party should assert a claim in case of a dispute.

Dubai property investors should always be aware of even minor changes in the leasing process and renting of Dubai properties.

If the rental cap has been set at 5%, it implies that landlords may not increase the rent higher than 5% of the existing rental deal for a period of 2 full years starting from period of commencement of the lease.

Rent in advance for tenancy deal in Dubai is four equal instalments paid in advance or as determined on the lease deed.

When transacting using a broker or agent, they should hold Broker’s Register Registration ID card. Their office should be licensed to perform the real estate renting or property management service to landlords and tenants by the Department of Economic Development. This is a special activity permit and is not the same as that of sales license to provide rental and management service.

The services of a broker or agent ranges from finding and presenting a suitable tenant to the landlord, executing rental agreement contract, and/or Property Management service for a renewable contracted period, or assisting tenants to seek suitable rental accommodation.

Generally, in Dubai, the tenants seeking rental property pay the agent 5% of annual rent amount as service fee.

A tenant who is on a visit visa is not allowed to sign a fixed-term tenancy deal. However, never take help of unregistered brokers for short-term lease accommodation, as such operators can take money up front and vanish. Further, RERA does not provide any assistance if you use unlicensed operators.

Rent Cap decree 2010

The rent cap decree that was passed in 2010 ensures stability of the property market and aims to regulate relations between landlords and tenants by charting a legal framework for this matter. This is the latest law regarding rental caps and rental index prices throughout Dubai. The law summarizes as follows:

The Prime Minister of UAE and Ruler of Dubai, HH Shaikh Mohammed Bin Rashid Al Maktoum, passed a decree on rent cap for Dubai in 2010. The decree also approved RERA rent index of 2009 as the main reference in determining the average rental upon which, rental increases would be based. The rental increase would be in the range 0 to 20 percent, depending on percentage on rent below the average index price. Only properties below 25% based on average index price were entitled to rental hikes.

Tenants already leasing property units in 2009, including residential and non-residential properties, were not subjected to rent hikes in 2010, if the rent in 2009 were equal to 25% or less than the average rent for similar property.

The maximum rent increase for tenants leasing such units shall be based on these rules:

  • If the rent was 26% to 35% less than average rent for similar property, the maximum increase shall be equivalent to 05% of rent value for the year.
  • If the rent was 36% to 45% less than average rent for similar property, maximum increase shall be equivalent to 10% of rent value for the year.
  • If the rent was 46% to 55% less than average rent for similar property, maximum increase shall be equivalent to 15% of rent value for the year.
  • If the rent was 56% to 65% less than average rent for similar property, maximum increase shall be equivalent to 20% of rent value for the year.

The similar rent value of property is based on “The Rent Index of the Emirate of Dubai” applicable on the date of renewing the tenancy contract. RERA will review and update the index periodically.

Dubai rent index 2011

The Dubai rent index was established as per Law No.62 for the year 2011 where RERA would create the index and review for regular update. The index is a guiding tool to determine rentals for various properties in all areas of Dubai. The index can be used as reference in case of disputes between tenants and landlords about determination of rental increase caps, together with RERA and the Special Judiciary Committee to resolve disputes between landlords and tenants in this regard.

Rental increase calculator

To calculate increased percentages and obtain rental values in some areas as guiding tool, the user should log on to RERA website and choose the rent cap calculator link, enter the required details to enquire easily and receive the increase cap and average rental for requested area and unit.

To access the rent cap calculator, click here

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