A view of Dubai's Sheikh Zayed Road.
PHOTO BY ARCHIVE
DUBAI – In the past year, Dubai has introduced significant initiatives to attract residents and expats and make the emirate an attractive destination for investment and culture.
To add to this, a new draft law is set to keep rents in Dubai fixed for a three-year period.
Although no date has been set for when this law will come into force, an official announcement will be made after the law’s publication in the official gazette.
This new law is aimed at making it easier for tenants to secure greater stability when relocating to or within Dubai.
Without the rent freeze, residential tenants faced the yearly issue of the inevitable rent increases.
The past year has undoubtedly been a difficult one, and tenants being forced to move or downsize due to rent increases is not ideal, especially with Dubai’s push to become the happiest city in the world.
The three-year rent freeze is expected to take effect from the start of a new tenancy, meaning that even if tenants move after the law comes into effect, the first three years of their new tenancy will be at fixed rent.
Based on currently available information, the three-year rent freeze is expected to apply to all residential property. Official announcements so far have not provided any more details in terms of the limitation on the scope of the residential property that will be covered.
It is expected that the rent freeze will bring additional stability to the tenants and to Dubai’s residential real estate market.
On the other hand, landlords may be worried about not being able to raise rents for the relevant period.
However, a landlord who increases rent will often find that the tenant ends up moving out, in which case, there is pressure to find a replacement tenant.
If the landlord cannot find a tenant, the loss to the landlord is far greater than if he or she had a tenant occupying the property.
Landlords are urged to observe the market, the competition, and negotiate appropriately with potential tenants.
If a tenant agrees to rent on the basis of fixed rent for three years, the landlord is more likely to have the property filled for that three-year period.
With Covid-19 pushing some businesses to implement work from home models, residential property is likely to benefit from the potential decrease in demand for office spaces. That should be another encouraging sign for residential property landlords.
As the actual text of the rent freeze law has not been made available as yet, some questions remain. Once the text of the law is made available, we will then be able to know whether there will be any lock-in periods, whether free zones will be equally covered, whether any specific types of residential property will be carved out, etc.
For the time being, we believe this will be a welcome initiative for expats currently living in or thinking about moving to Dubai.
Landlords, although with less fervor, may also appreciate the benefit of the stability and occupied properties in exchange for the right to increase rents in the first three years of a new tenancy.
Michael Kortbawi is a partner and Taronish Mistry is an associate at BSA Ahmad Bin Hezeem
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