(MENAFN - Khaleej Times) The latest move by Dubai to determine and regulate rent hike rate is expected to give a major fillip to the real estate sector by providing greater transparency and clarity to the tenant-owner relationship, property analysts said on Sunday.
His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE, in his capacity as the Ruler of Dubai, issued on Saturday the new decree that would not allow landlords to raise rents on renewals if the current lease rate is 10 per cent lower than the average rent of a similar property in the same location.
The new Decree No. 43 of 2013, which allows maximum rent hike of up to 20 per cent in cases where the average rent in the area is more than 40 per cent of the current lease rate, will replace all previous regulations in this respect.
Ranjeet Chavan, director of SPF Realty, said the move would definitely have a positive impact on the market.
"It is developed in alignment with the current market environment. The move would provide specific guidelines to both tenants and property owners by bringing them together on the same page. As such, investors would have better clarity on what rental returns they can expect on their property. This, in turn, would result in an increase in the level of confidence of the investor, which should lead to a spur in buying," said Chavan.
Another analyst, Tanzeel Gader, CEO of Flash Properties, argued that the new decree demonstrated the maturity state of the real estate industry in Dubai.
The new rent hike regulation follows the introduction of mature legislations in the second half of 2013, he pointed out. These include regulation of the holiday homes market in Dubai, the Central Bank's new mortgage rules, the Dubai Land Department decision to double the transfer fees on property sales.
"All of these regulations, last of which is this decree, will help further boost the real estate sector in Dubai by introducing great deal of transparency and clarity to the tenant-owner relationship which will pay off to all stakeholders involved," said Gader.
He said the move would go a long way in the competiveness and preparedness of the UAE to achieve its strategy to be one of the best countries in the world in 2021 by the modernisation driv pertaining to all walks of life.
"It will also contribute in attracting best multinational companies and minds to come to the UAE and live in it. This decree will have a sustainable impact on the property sector in 2014 and onwards as it will keep the market in good shape and greatly appealing to the local, regional and international investors," said Gader.
According the analyst, there are ample opportunities down the road for the real estate sector thanks to Expo 2020 and other milestone projects happening in Dubai, which has successfully emerged to be one of the hottest destinations in the world for exhibitions, tourism and lucrative and sustainable investments.
The new slab system helps to determine and regulate rent hikes by setting the rates of maximum rent increases - varying from five per cent to 20 per cent - depending on the extent of difference between rent value set by the Rera Index and the prevailing rental value.
Under the new rule, landlords can raise rents upon renewals by five per cent if the earlier rental is 11 to 20 per cent lower than the average rent for a similar property in the same location. Rents can be raised to 10 per cent if the rental is 21 to 30 per cent lower; 15 per cent if the rent is as low as 31 to 40 per cent; and 20 per cent if a property's rental is more than 40 per cent less than comparable ones in the same location.
Dubai has set up a Rental Dispute Settlement Centre to expedite the process of rent dispute resolutions. The facility, which was set up to adjudicate on both residential and commercial disputes, would use new procedures and mechanisms to expedite the settlement process.
It has replaced the Judicial Committee that previously settled disputes and disagreements between landlords and tenants.
Average housing rents in Dubai soared by more than 30 per cent over the past year with the first half of 2013 recording a 14 per cent increase.
Experts believe as that the much talked about "Expo boost" has already been priced into Dubai's real estate market to an extent, rent hike would be at a moderate pace.
Analysts are of the view that with rents in Dubai expected to hit new highs, the new facilities are expected to bring relief to tenants and would help pre-empt landlords from excessively hiking rents.