Dubai draft law to freeze rents will provide 'peace of mind' for landlords

Tenants and landlords support a cap on lease fees in current rental market

DUBAI, UNITED ARAB EMIRATES. 16 APRIL 2020. Rain that fell overnight in Dubai with the possibility of ongoing showers during the day. A hazy view of the Dubai Marina canal. (Photo: Antonie Robertson/The National) Journalist: STANDALONE. Section: National.
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A draft law setting out plans to freeze rents for three years in Dubai has won support from both renters and property owners.

The Dubai Land Department told The National  the proposed legislation would bring stability to the market for both landlords and tenants and reduce rental disputes.

Residents had hoped for more information on the draft law, to clarify if the freeze would apply both to new rental leases and existing contracts.

The Land Department said details would be made available later, but there was no date yet on when the law would be signed.

I prefer a law like this because even if I get marginally less in rent at least I will have peace of mind for three years

Andrew D'costa, a landlord in Silicon Oasis, welcomed the plan, due to challenges securing tenants in the current abundance of rental  properties.

"I prefer a law like this because even if I get marginally less in rent at least I will have peace of mind for three years if someone will commit," said Mr D'costa, who is chairman of an owners' association in Silicon Oasis.

"A three-year rent freeze with the same family continuing to stay, they will be happy they are not being asked for an increase."

Mr D'costa lives in a three-bedroom apartment that he owns and rents out a two-bedroom unit in the same building.

Annual rents have fallen from approximately Dh95,000 ($25,800) to about Dh55,000 for a two-bedroom apartment in the neighbourhood. In some new buildings, rents have dropped to Dh40,000.

Landlords pay between Dh15,000 to Dh20,000 for service charges, leaving a small amount to cover mortgages.

Residents across Dubai have moved out of apartments and into villas over the past year, due to remote working and the desire for more personal space during the coronavirus pandemic.

Rental freeze implemented in other emirates

Alexis Waller, head of real estate at Clyde & Co in Dubai, said similar limits placed on rent increases have been implemented in other emirates.

She added that other laws did not require a commitment from a tenant to sign a three-year lease, instead merely setting out the rental terms if they did remain in the same property for such a period.

"Other emirates, such as Sharjah, currently have similar rental freezes and Abu Dhabi has, in the past, limited increases within leases of three years or less," Ms Waller said.

“These have not applied any penalties to tenants who do not wish to sign up to a three-year period.

"And we would expect the same for Dubai –  that it is not to be used to penalise a tenant who does not wish to commit at the outset to the longer-term period," she said.

The sector is awaiting more information on whether if the rental freeze would apply to all properties – residential, commercial and industrial – and if the cap would continue beyond three years.

“There was already a degree of protection under Dubai’s rent cap law limiting increases at renewal, and the proposed new law goes further to help tenants manage their rental liabilities by knowing that their agreed rate will be fixed for the proposed period,” Ms Waller said.

“It will also encourage tenants to rent the same property for longer periods.

"There could be some adverse impact to landlords if the proposed new law applied to existing contracts rather than new rental contracts, and this is the area that needs to be clarified.”

Tenants would support the decision since it would give certainty to rental outgoings and landlords would seek to manage it by building in any increase to the agreed rental rate, she said.

Long-standing tenant in favour of new law

Dubai, United Arab Emirates - Reporter: Ramola Talwar. News. Draft law on freezing rents in Dubai for three years. We speak to a tenant George Hettiaratchy, who has lived in the UAE for 37 years, who says renters will be happy to continue to pay existing low rents in the market for the next three years. Thursday, April 15th, 2021. Dubai. Chris Whiteoak / The National
George Hettiaratchy, who moved from Sharjah in 2018 to a two-bedroom apartment on Sheikh Zayed Road in Dubai, said he would be happy for his rent to be capped at its current rate. Chris Whiteoak / The National

George Hettiaratchy moved from Sharjah in 2018 to a two-bedroom apartment on Sheikh Zayed Road in Dubai, where he pays Dh 58,000 a year in rent.

“Considering the location and facilities, I would be happy to continue at this rate. I’m within walking distance to Dubai Mall, Burj Khalifa and the fireworks,” said Mr Hettiaratchy, a UAE resident for more than three decades.

“For any law you have to think of both parties, and it’s good for most tenants.

"However, some tenants may not prefer three years because rents are going down, so they may want to move.

"Landlords prefer this [rent freeze] but if rents were going up – like a couple of years ago – then the landlords would not agree," Mr Hettiaratchy said.

"Still, overall, both parties will benefit.”

Homeowner awaiting further information

Nirain Lobo, a landlord in Jumeirah Islands, felt the law tipped the balance in favour of tenants.

“We have annual contracts, so if there is a rent freeze for three years, is there going to be a contract freeze for three years?"

Mr Lobo spoke of investors trapped in lower rentals but paying higher interest rates on mortgages.

“For the tenant it’s probably a win-win but again it depends on which way the market moves and it’s really very fluid.

"It will depend on the finer points in this law, like what are the exit clauses for both parties or will both be stuck?"