New rental law sets out higher increases in Dubai

Residential rents in Dubai look set to increase in 2014 with new laws giving landlords the right to increase rents by up to 20% in some circumstances.

The latest real estate sector reforms just announced by the government override the 5% rental cap and set out new maximum rent increases for tenancy contracts renewals.

In 2007 at the height of the property boom in Dubai when rent prices of up to 15% were common a rental cap of 7% was introduced but this was reduced to 5% in 2008.

Under the new decree issued by Dubai ruler Sheikh Mohammad Bin Rashid Al Maktoum, rent rises can now kick in when a property hits 11% below market value for an area.

If it is between 11% and 20% lower than the average rent for a similar property, a landlord can increase the rent by 5% and the maximum increase can be 10% if the property falls 21% to 30% below market rates and 15% if the property is 31% to 40% under average rents.

However, Dubai properties which are more than 40% below average rents for similar properties in an area could be subject to rent hikes of up to 20%, some experts have pointed out.

The average rent, which will be used as the benchmark for the rises, will be determined by the Real Estate Regulatory Agency’s rent index.

‘The decree applies to landlords from the public and private sectors in the emirate of Dubai, including private development areas and free zones,’ said a statement from the government.

The new law will take immediate effect but it is unclear whether the current caveat on landlords that prevents any rent increase for two years after a tenancy contract is signed will still apply.

The move follows several reforms initiated by the government in a bid to better control Dubai’s real estate rental market.

The latest figures from property firm CB Richard Ellis indicate that average rental rates for residential property in Dubai have increased by 17% in 2012.