The use of Al Etihad Credit Bureau's (AECB) reports and scores by real estate companies to assess the financial health of tenants is an indication that the UAE property market is maturing, according to analysts.
Running credit checks on prospective tenants is an established practice in many sophisticated real estate markets including the US and Canada, and its broader use locally “is a welcome change for the UAE market”, said Prathyusha Gurrapu, head of research and advisory at Core.
“We expect property managers with large portfolios to gradually take on this trend – albeit further incentivising tenants with strong credit scores. Given the softer market conditions and ample stock to choose from, the rental market is expected to remain tenant-friendly in the near term,” he said.
On Tuesday, Dubai Real Estate Centre, a property development and management company in the emirate, said it will use AECB scores to better assess the risk associated with new tenants fulfilling their payment obligations and renewals of tenancy contracts.
The company, which manages a portfolio of more than 3,200 residential and commercial units across the UAE, is the first large-scale private real estate company in the emirate to use AECB reports.
FAB Properties, a real estate management company owned by the UAE's biggest lender First Abu Dhabi Bank, also uses AECB's credit data to assess prospective tenants.
The partnerships between the companies and AECB are also likely to limit the number of bounced cheques and reduce both rental disputes and defaults, Ms Gurrapu said.
"The real estate firms can benefit from attracting and retaining tenants with stronger credit scores through incentivised rental rates while creating value for their portfolio."
The adoption of credit reports by major landlords is “a clear indication [that] the real estate market in the UAE is maturing, in terms of its legal framework and its governance, which are very important elements for attracting new residents as well as for investment”, said Firas Al Msaddi, chief executive of Fam Properties in Dubai.
“The rental market remains very attractive in terms of its income, the rental yields,” he said, adding that introducing credit checks on tenants will increase the confidence of people investing in Real Estate Investment Trusts (Reits) as well.
“The concept of Reit is heavily dependent on rental income. We’ve seen quite a few Real Estate Investment Trusts coming to the market and I think more are to come during 2020.”
Dubai properties consistently offer higher rental yields of more than 7 per cent on average, which compares favourably with other major cities. Average rental yields in New York stand at 2.9 per cent and London 2.7 per cent, according to Property Finder.
The AECB was set up in 2014 to assess credit risks through information from multiple entities, including banks and finance companies, to compile reports available to individuals and companies in the UAE.
“We believe this is the start of a positive transformation within the property rental sector whereby tenants will undoubtedly receive added benefits for maintaining a high credit score and a good credit history,” said Marwan Ahmed Lutfi, chief executive of AECB.
