Dubai draft law to freeze rents for three years 'will stabilise property market'

Dubai Land Department says the proposed legislation will reduce disputes between tenants and landlords

View of the Nakheel Villas in Jumeirah Village Circle. All photos by Antonie Robertson/The National

Commonly known as JVC, the district is home to more than 25,000 residents. Construction of some buildings are ongoing, but completed ones quickly attracted people

This is one of the newer buildings in the neighbourhood. There is a mix of developers, so rents vary from each residential structure

Rents for a one-bedroom apartment start at Dh25,000, but ones in newer buildings like this can cost between Dh65,000 to Dh75,000

Flats in new buildings come with equipped kitchens, wooden flooring and a more modern look

Most buildings in JVC have their own swimming pool and gymnasium

A view of a living room in a one-bedroom flat

Halfa park is one among many other parks in JVC

Most of them have a running track and kids play area

JVC is also known for its unique townhouses and villas

This is a three-storey townhouse that comes with its own private lift

This is the signature structure in JVC -- the Five hotel. It has 269 infinitey pools - nearly one for each room

A new draft law set to keep rents unchanged for a three-year period will ensure properties are valued fairly and ease disputes between renters and owners, Dubai Land Department said.

The rent freeze, if approved, will bring stability to the real estate market and provide a clear picture of the value of properties in the emirate, according to the department, the government body that handles registrations and frames legislation for the real estate sector.

Once the law is signed, a government notification will be issued to announce it has been adopted, with guidelines published alongside.

Officials did not have a date for when the law would come into force and are awaiting approval.

"Through this law, we seek to create further stability in the market, as well as to make certain that landlords receive fair market value for their properties following the suggested three-year stabilisation that will be factored into the new law," the Dubai Land Department told The National.

The authority said through Rera, the Real Estate Regulatory Agency, it aims to protect the rights of both tenants and owners.

"Fixing rent values for three years will reduce the number of disputes between landlords and tenants by painting a clearer and more consistent picture for both parties," the department said.

“The new law will help stabilise the market and boost trust in it, leading to a continuously dynamic real estate industry that Dubai is renowned for.”

Details would be available later over whether this would only apply to new rental contracts or lease renewals, the department said.

“This law was introduced as part of our efforts to protect the rights of tenants.”

“Once it is signed off and put into effect, a notification will be issued to announce its adoption,” the department said.

In January, senior officials had said that under the proposed law, a landlord would not be allowed to increase rents within three years of the tenant signing a contract.

Legislation will attract investment

Officials on the government website said a fixed three-year rent would encourage investments and increase the occupancy rate of properties in Dubai.

Sultan Butti bin Mejren, director general of the Dubai Land Department, had said the law would ensure that tenants need not move frequently due to rent increases.

He said the law would also give landlords a clear idea of income that could be expected.

Experts have said the planned changes would steady the market.

“Instead of looking at property on a short-term tenancy basis of one year, there will be longevity,” said Jonathan Hood, head of residential valuation at Colliers.

“In every market, elements of uncertainty don’t instil confidence. If we can have more regulation to give people more confidence and to allow people to better plan their finances, it could be a good thing,” Mr Hood said.

He said landlords got nervous when rental income dipped.

“They have had to reduce their margins and obviously recalculate their finances because they need to cover mortgage costs. From the landlords’ perspective, if they knew they had a tenant for three years, it gives people a little bit more transparency.”

Price haggling gives way to stability

The downside for both parties is being unable to take advantage of market fluctuations to gain the benefit of lower fees or a rise in charges.

"But maybe that's a price worth paying, to know that you have got security for three years," Mr Hood said.

“People will be looking at things with a longer view rather than the short term. So from a landlord's perspective, they might be fortunate to have fewer void periods in the rental,” he said.

“The tenants may have more interest in the property so they may think of it more as their permanent home, not just a temporary place. With that comes pride in ownership, so looking after the property more. There is also less wear and tear of people moving in and out.”

There has been a recent surge in the residential property market, with people wanting to own or rent villas and tenants moving out of apartments to houses that offer more space during the coronavirus pandemic.

But challenges remain for the real estate sector, both locally and globally, as the world struggles to emerge from the pandemic.

“A change in mindset from a one-year to a three-year relationship will improve both take up of villas and properties for investors looking for stable returns,” said Andrew Thomson, head of real estate and hospitality for law firm Eversheds Sutherland in the Middle East and North Africa.

“One of the bigger issues always has been volatility, both in the commercial and residential space.

"There could be upsides for people who are in it for the long term, looking to build sustainable relationships with the tenants.

“In the context of what has been a very difficult few years for investors, it gives people confidence," Mr Thomson said.

“I’m confident and bullish about how Dubai is going to be in the next few years.”