Construction Week Newsletter 26th March 2005

Lately I have begun to gnaw at my nails. I have developed a twitch next to my eye and I jump at every noise. I look fearfully around me. I sit down with my account statements every night and work out my budget again and again. “Doctor — am I paranoid?”

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By  Eudore Chand Published  March 26, 2005

Editorial Leader|~||~||~|

Raising rental prices: How much can the market bear?

Lately I have begun to gnaw at my nails. I have developed a twitch next to my eye and I jump at every noise. I look fearfully around me. I sit down with my account statements every night and work out my budget again and again. “Doctor — am I paranoid?” The man in the white coat questioned me about my lifestyle (admittedly the part about lack of exercise did not please him), but other than that, the doctor could find no reason for my anxiety attacks. Then he asked if I was afraid of anything — and that is when the dam burst, the deep anxiety welled up and overflowed and I revealed to him my deepest, darkest of secrets. “My rent contract is due for renewal next month.” The man just nodded understandingly, gave me a Gallic shrug, expressed his inability to help and presented me with the bill. Before I knew it, I was being eased out of the door into the big bad world once again, fearing that the rent collector would be lurking around the next corner. The only comfort I could take was that I am not alone in my plight. Landlords in Dubai seem to have gone wild, and some of the rents that are being charged appear dangerously close to having nothing to do with the facilities that are provided in the apartment building, or its upkeep and maintenance. One of my friends complained that the rent for his one-bedroom flat along Sheikh Zayed Road was raised by a staggering 50% in one go. He was told to pay up or leave. My friend admitted that the location was good and that the maintenance was satisfactory (even if the air conditioning repair man turned up after a full week of repeated requests), but he did point out to the landlord’s minion that these were not good enough reasons to raise the rent by 50%. It made no difference. My friend regrettably felt a twinge of longing for the days when you could execute the bearer of bad news. This particular case may be an extreme example, but rental increases of 15% to 30% a year in Dubai are commonplace. I heard somewhere that there is a municipal rule that states landlords cannot raise the rent by more than 20% in one go. I also heard somewhere that landlords have a responsibility to maintain the premises and to paint the building, inside and outside, every two years. And to be fair, I admit that I do see a lot of window cleaning. Apparently landlords have been taking lessons from the developers of Dubai. Unlike rented properties — which always had facilities maintenance and management charges built into the rent — freehold property developers had to separately impose a ‘service charge’ so that common areas could be maintained and managed at their developments. Very logical. Apparently, they initially made a mistake in their arithmetic and now “have” to pass on the full burden to the flat and villa owners in their projects. Not very bright, but still understandable. Why then should landlords, upon seeing people stumping up cash to buy freehold property, be left out of the boom? Since the market appears to have lots of money, why shouldn’t landlords charge the limit? But what they don’t seem to realise is that the people buying freehold property are in a different category to those who are living in rented apartments. By raising rentals, they are actually fuelling freehold sales. They are making the option of replacing rental payments with mortgage payments much more attractive by reducing the gap between the two. However, the present situation may not last forever. Good times never do, do they? We are all expecting hundreds of thousands of new freehold units to come onto the market as projects near completion. Supply is going to increase and the prices will have to soften, thus making buying a property a much more attractive and feasible option for residents. This shift could become stronger and stronger, and if prices of freehold properties come down enough and their availability is high, it could reach a situation where landlords do not have enough people coming back to the rental market to fill their buildings.||**||

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