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New rental terms should last three years in Dubai

A view of the buildings at the Dubai Marina.

A cap on hikes would ensure no landlord can demand more based on his whim

Dubai was working on a new rental regime has taken the real estate market and all its stakeholders by surprise. Not to forget the millions of tenants who either live or work out of these leased premises. So what is Dubai planning to do differently?

The Land Department, it is believed, would tweak the lease agreement whereby there can be no rental increase for the first three years of signing a lease contract. This, if implemented, would apply as much to the residential space (which every tenant in Dubai would wish for) as it would for the retail and commercial spaces.

Yes, tenants are benefiting from a soft market with rentals under constant stress. But there will come a time when market turns and rents head up the steep pathways. A three-year cap on hikes would ensure that no landlord can demand more based on his whim. It also assures tenants of a suitable time frame before they need to spend more. It’s important to stress that the proposition looks compelling.

Tenants would know exactly what their budgetary outlay for rent will be over the next 36 months. It facilitates planning that is integral to their economic ambitions. And recent history shows when markets turn around quite quickly, rents tend to be the first thing that get inflated.

While the Land Department is still considering the idea, certainty in the rental marketplace is a trait that needs to be fostered and encouraged, as it does away with the needless fluidity where tenants look to move regularly to seek out better rental rates in a changeable scenario.

It’s not just in the housing sector that this three-year cap will inject higher optimism and stability; if it becomes all-inclusive, the retail sector stands to benefit too. There are many concerns in the latter category that point to the predicament in which mall operators or individual landlords of the commercial property hike rents, even when market conditions do not dictate them. 
While many real estate experts point to the downsides of fixed retail rentals, such as the percentage of the turnover for the landlord (subject to fluctuation due to footfall unpredictability), the fact is a stable outlay on rent, even for retailers, is in the long run a distinct advantage.

If the three-year cap proposal were to be put into effect, the Land Department’s move would provide a timely boost, bringing a level of maturity to the marketplace while also removing some of the elements of doubt over pricing points. This is a Land Department proposal that needs to be endorsed and implemented.