Rents in Dubai, for both residential and commercial property have been skyrocketing this year, with rent for a two bedroom flat in Business Bay now anywhere between AED 145,000 (USD 39,000) at the low end and AED 180,000 (USD 49000) on the high end. Three years ago tenants were paying around AED 75,000. Rents in this locale have increased on average by 100 per cent over the last year.
Townhouses in the largely undeveloped Jumeirah Village Circle area have jumped on average AED 10,000-20,000 in the last two months for new tenants. Commercial properties are facing similar escalations, with conservative estimates suggesting that offices in prime locations saw rents increase on average by more than 10 per cent in Q1 2014.
While Dubai’s regulator RERA has issued rent caps for existing tenants, the Emirate currently has no controls on increases for new rental contracts, meaning a landlord can roll a dice and pick a rental figure and all other landlords will follow suit.
The average mid-level worker in Dubai earns around AED 15,000 a month. Studio apartments in Discovery Gardens, one of the previously cheap areas, now go for around AED 60,000 in annual rent ($16000), payable in one or two cheques. Do the maths, it simply doesn’t work.
Dubai has also brought in a rule banning sharing of residential units. The fine is AED 10 per square foot, with a minimum fine of AED 1,000, and a maximum of AED 50,000 and the person who rents out the space, either the landlord/owner or the tenant is responsible for the fine payment.
So what are the options? You can’t share a villa, you can’t share an apartment, you can’t afford a lump sum cheque.
Do you move your office and home to one of the cheaper outlying Emirates? Sounds great, but what about those people who have children in school and employees based in Dubai? Do you uproot your entire family and give up a good standard of education at a school of your choice for something cheaper with a lower standard just because landlords in Dubai are greedy?
I believe the only solution is for the Dubai government to force rents down to the sustainable levels seen in 2009/2010, taking into consideration the average expat salary across a range of sectors. What I would suggest is that the government undertakes a salary survey of a large section of the Dubai population across nationalities, job sectors and job levels and then develops a rental cap for new and existing contracts based on one third of the average income across all sectors.
The fact is that salaries are not increasing by 10 per cent, 25 percent or 100 per cent a year. Generally, salaries are not increasing at all as companies feel the pinch. This means that more and more people will borrow from the bank to pay rents, be unable to pay that money back and we will be in 2008/9 all over again.
If rents are not normalised I predict that by the end of this year Dubai may face another massive property bubble.
