Dubai tenants face higher rents after Rera calculator reset

Move set to increase demand in newer and developing communities, analysts say

Dubai Marina. The emirate's property sector emerged strongly from the Covid-19 pandemic amid robust economic momentum. Antonie Robertson / The National

The recent update to Dubai's Real Estate Regulatory Authority rent calculator is a double-edged sword for deal-hunting tenants, according to analysts who say the rise in rents will be balanced out by the growth of communities offering better value for money.

The Rera calculator, which was recalibrated on March 1 to become more representative of open-market pricing, is revised periodically for certain communities and buildings to reflect current market rental rates.

It shows whether or not a rent increase is allowed and uses criteria such as location, property type, current rent and number of rooms, and works by comparing properties with similar ones nearby.

Rents in Dubai surged 19 per cent year-on-year in 2023, compared with 27 per cent the previous year, property consultancy Cushman & Wakefield said in its latest market report.

It said many tenants were opting to stay put because rental increases during renewals are much lower compared to signing new leases, but several renewing this year will face higher rent due to the adjustment in Rera's calculator.

"Last year, we observed rental ranges widening for some areas by increasing the top end of the allowed price increase," Haider Tuaima, director and head of real estate research at Dubai-based ValuStrat, told The National.

"The residential rental market is on an upswing stage of the cycle. Therefore, increasing the upper end of the permitted rental range allows landlords to increase their rates closer to prevailing market rents and improve their yields in the process."

Cherif Sleiman, chief revenue officer of Property Finder, said the recent change in the rental index also reflects the efforts of Rera to balance a fair rent increase across different communities "while fostering a healthy environment for investors, ensuring competitive rental yields aligned with global standards".

"The nation's commitment to fostering long-term residency and investment has fuelled this trend, resulting in a growing demand and heightened interest in investment," Mr Sleiman told The National.

Renters become buyers

With many tenants with historically low rents set to face significant increases in their next renewal, John Lyons, managing director at Dubai-based Espace Real Estate, said it may encourage more to a foothold on the property ladder.

"This will increase the churn rate of rental stock within many communities, while also accelerating the trend of 2023, whereby many tenants decided to buy, opting for the lower monthly costs associated with home ownership," Mr Lyons said.

"Although the updated rent calculator will inevitably cause some level of disruption for many tenants, the great pivot of housing stock from the rental sector to the end-user sector will help to create increased levels of stability for Dubai’s residential property market over the longer term."

Jacob Bramley, senior leasing manager at Dubai-based Betterhomes, said the consequence was two-pronged: any increase may prompt tenants to vacate their property to save money, which in turn would give an opportunity for landlords to re-rent at a higher price, offering better return for their investment.

"The revision, now more aligned with current market prices ... differs from the previous scenario where tenants were more inclined to stay," Mr Bramley told The National.

Better value

However, this could also lead to increased demand in "newer" and developing communities that offer better value for money, as tenants opt to downsize or move further from their ideal search location, Mr Bramley said.

"With more tenants choosing to move, this may lead to long-term increases in market prices, as landlords can charge tenants the current market value compared to when tenants opted to renew at a lower price previously."

Another possible outcome is "increasing the number of available rental properties if tenants are no longer able to afford the rent and decide to vacate the property", ValuStrat's Mr Tuaima said.

Dubai's property sector, a key pillar of its economy, emerged strongly from the Covid-19 pandemic amid robust economic momentum, allowing it to remain an attractive asset for domestic and international investors.

The emirate had a bumper year in 2023, registering a record 1.6 million property transactions across market segments, an almost 17 per cent jump on an annual basis, the Dubai Land Department reported last month.

The total value of real estate deals in the emirate reached Dh634 billion ($172.6 billion), with the number of transactions hitting 166,400 in 2023. This marked an annual growth of 20 per cent in the value of deals and 36 per cent in the number of transactions.

How to use Rera calculator

Rera was established in 2013 to regulate the market and prevent it from overheating.

The rental calculator shows whether a rent increase is applicable and works by comparing properties with similar ones nearby.

Tenants and landlords can access the calculator on the Dubai Land Department website.

The maximum percentage of rent increase for Dubai properties depends on the area, property type and size, and current market value.

If the rental price is:

• Less than 10 per cent below the market value for the area, no increase is allowed
• Between 11 per cent and 20 per cent below market value for the area, a landlord can increase by 5 per cent
• Between 21 per cent and 30 per cent below market value for the area, a landlord can increase by 10 per cent
• Between 31 per cent and 40 per cent below market value for the area, a landlord can increase rent by 15 per cent
• Forty-one per cent or more below market value will permit a 20 per cent increase in rent

According to the Rera calculator, a landlord cannot increase the rent by more than 20 per cent in any given year.

However, if the landlord and tenant agree on a higher increase during private negotiations, that can exceed 20 per cent.