Over the past few weeks, the tension between tenants and landlords in Dubai escalates, reaching brand new levels. Tenants are very upset by the most recent rent increases. On the other hand, new expat “property investors” are prematurely counting on the government to abolish the 5% rental cap as it happened in Abu Dhabi in November and demand higher rents.
Expo 2020 Effects
Why the removal of the rent cap in Dubai would be a problem? The answer is easy: Dubai rents will explode! Tenants are already reporting dangerous new practices by landlords. Rents in some area of the city jumped as much as 30% during the past one month only. The sudden spike is attributed to the news about Dubai’s World Expo 2020 win.
New expat landlords, who managed to buy homes with cheap loans hoping that the rent will cover the monthly mortgage installments, quickly interpreted the positive news as a green light to demand rent increases. A great number of tenants report that their landlords already asked them out or demanded much higher rents. Bear in mind, Dubai’s gold rush prompted most of the new “property investors” to leave their scrupulous and moral values in their home countries.
It is true that the World Expo 2020 will certainly attract more people to the city. It is also expected that Expo 2020 will create more profit opportunities for companies and entire business sectors.
Nevertheless, all of these changes will happen eventually and in the distant future. In other words, they are yet to be seen in a few years from now. Even if the already very high property prices in Dubai jump further, it is not justified to happen today, nor tomorrow. Still, many landlords were very fast to increase the rents as soon as Dubai’s Expo 2020 win was announced.
Let’s now look at the private sector salaries in Dubai. They did not jump miraculously after the emirate’s bid win. No one has reported a salary increase on the back of the Expo 2020 win. As a matter of fact, salaries remain pretty much the same for quite a while now. Moreover, the added benefits to the expat packages are less and less in recent years.
However, if Dubai removes the 5% rent cap in 2014, residential rents are expected to be artificially increased by 30% on average. In particular, new foreign property investors expect rents to return to the bubble level of 2008, without consideration of the humongous new supply of residential and commercial units since then.
Rent or Buy
Supporters of the new Abu Dhabi rental regulation suggest that the abolition of the 5% rental cap in Dubai would encourage more people to buy homes in the city, instead of renting. However, they somehow omit the fact that expats in Dubai can only lease a property for 99 years unlike in other countries where they can buy the property forever. Simply said, when an expat purchases a property in the emirate, he or she practically rents it for a maximum of 99 years. This regulation is one of the reasons why expatriates in Dubai choose to live as tenants and not as owners. In addition, a number of added expenses such as housing and transfer fees, for example, certainly don’t ease the home buying process. Buying property in Dubai now is very expensive, much more expensive than in many developed countries!
In Search for Balance
What is needed in this situation is a protection and more rights not only for Dubai landlords, but also for Dubai tenants. The real estate market in the emirate continues to be extremely volatile and requires new protection policies for all parties. This fact was stressed out by the IMF several times during the past one year.
The sad part is that more and more people in Dubai are already considering leaving the country due to the new property speculations triggered by the Expo 2020 news. Home removal, storage and shipping companies report extremely high levels of assignments in the recent month. Many people are also shifting to Sharjah and Ajman in attempt to avoid paying the high rents.
The demand for new homes in Dubai is not as high as it used to be and many buildings even in the prime areas of the city remain unoccupied. Greedy landlords and real estate companies seek the support of various mainly British media outlets to encourage the market rise. So far they have succeeded, but in the not so distant future this will lead to a new painful for many crash.
What we should not forget is that Expo 2020 will bring some incentives. Food and beverages-related businesses will benefit at most. However, a hike in property prices and rents without a real reason, but stimulated mainly by unscrupulous profiteers can easily lead to a new bubble burst.
Dubai should not aim at a speedy boom or a roller coaster economic model, but at a slow and steady growth instead. That will appeal equally well to both landlords and tenants.
