Danube Group expresses concern over impending freeze in emirate rents
One of Dubai's biggest property developers believes the rent freeze is meant to help tenants, not landlords.
In April 2021, Dubai Lands Department (DLD) announced an upcoming freeze on rental prices for the next 3 years this year.
The government agency has yet to fully clarify how far the freeze will go and which areas and property types will be affected. However, the news has already sent many landlords across the emirate into a panic.
Danube Group believes that rent growth should remain within the bounds of market movements and intervention in this process, such as the freeze, should only occur if the situation is getting out of control and harming tenants.
The rental market in Dubai is already subject to a number of regulations, including a maximum growth cap introduced in 2005-2006 and a cap on renegotiations in 2013.
During those years, the sector was severely unbalanced in terms of supply and demand, the emirate's economy was growing at 14-16% per year and all this led to large jumps in rental rates.
The annual growth in rates was 20-40%, forcing even families with good incomes to only look at supply from the low-priced property sector. At that time, there was no broad market for freehold properties (freehold - properties that can be purchased by foreigners in unconditional and perpetual ownership). So the only option was to lease properties or ownership rights.
However, since 2016 the situation has changed and supply has already started to exceed demand, so landlords have lost the main lever to increase prices. In 2018-2019, oversupply was looming, which was only exacerbated in 2020 by the pandemic.
All this indeed led to uncontrollable movements in rental prices, but in 2021 the situation finally showed conditions for stabilization due to the influx of a large number of foreign investors and buyers.
Considering all this, Danube concludes that the introduction of the freeze at this stage will not lead to the market balancing itself and will only play into the hands of landlords.
This is confirmed by recent news that many landlords have already renegotiated contracts with tenants, forcing high prices on them. And all this is just to freeze cap prices for the next three years.
Thus, the overall recovery in demand in the emirate will be met with limited and extremely expensive rental supply, which will only alienate buyers from the market.