Dec. 22 (Bloomberg) -- Dubai, where property prices have surged more than 40 percent this year, will allow landlords to increase rents at a faster pace as economic growth in the emirate accelerates.
Under the decree, issued by Sheikh Mohammed bin Rashid Al Maktoum, landlords can raise rents by 20 percent if contracts are 40 percent or more below average prices, as measured by a government index. Previous guidelines allowed for increases of as much as 20 percent for rents that were 55 percent or more below market value.
Dubai’s economy is headed for the fastest expansion in six years after output grew 4.9 percent in the first half of 2013. That’s pressuring rents and sparking disputes with landlords. The latest changes may help to regulate the market and avert evictions as landlords seek to capitalize on rising rents, EFG Hermes Holding SAE said in an e-mailed note.
“The only thing it does is make the market a bit more regulated in the sense that the rental index can become more institutionalized,” Digvijay Singh, head of Middle East equity strategy at VTB Capital in Dubai, said by phone.
The sheikhdom’s benchmark DFM General Index has risen 99 percent so far this year, and is the world’s second-best performing index, according to data compiled by Bloomberg. The measure was down 0.5 percent at 12:46 p.m. in Dubai.
The rental price guidelines will be enforced after the decree is published in the official gazette, according to a statement yesterday on Sheikh Mohammed’s official website.
The changes will permit rents to increase 5 percent if they are 11 to 20 percent less than the average rate on similar properties, 10 percent if the rent is 21 to 30 percent less the average, and 15 percent on rents that are 31 to 40 percent less than similar properties.
The previous rent cap didn’t allow landlords to take full advantage of rising rates, prompting some homeowners to evict tenants, EFG Hermes said.
The greater ability for landlords to increase prices closer to a market rate may bring about “a steadier rise in rents, rather than the sharp hikes, after an initial adjustment, while enabling existing tenants to remain in place,” the investment bank said.
Property prices in the emirates have risen for a second year after slumping as much as 65 percent from their peak in 2008 after the global financial crisis tightened credit. Dubai’s Expo 2020 win last month will further bolster the real estate market, Jones Lang LaSalle said in November.
The Dubai government this year established a center to settle rental disputes to replace an existing committee. The center will have the capacity to review 250 cases a week, up from 100 previously. The government also doubled property-sale fees to 4 percent to avert another property bubble.
Dubai Land Department Director General Sultan Bin Mejren said in September the government is planning further regulations in the real estate market.
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