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Dubai Rent Freeze Law – How it will Impact the Landlords & the Tenants?

For decades, the world has known Dubai as a city, popular for launching distinctive initiatives to attract residents & expats towards its glittering property sector. These measures always had a profound impact on the UAE economy and acted as a catholicon for the residents and tenants in safeguarding their interest while paying rents and security deposits, signing up for contracts, etc. To support those struggling in paying rent due to unforeseen circumstances such as job losses or salary cuts, Dubai has come up with a new draft of rent freeze law to keep the rents in the city fixed for three-years. The rent freeze law is expected to act in the best interest of both landlords & tenants and will make the Dubai property market ‘a perfect ten’ or ‘tantalizing’ for the world. The law is yet to come into effect.

Objective of Rent Freeze Law:

The primary objective of this rent freeze law is to offer relief to tenants and guide them towards greater stability in relocating within Dubai.  Every year, the residential tenants in Dubai face an inevitable challenge of frequent rent increases. The rent freeze norm is expected to curb the pace at which rent increases and will also boost the occupancy rate, making the Dubai property market more attractive for tenants.

An Effort to Boost UAEs Rankings in the ‘World Happiness Report’:

Without a shadow of a doubt, the year 2020 was indeed a tough year for the UAE. The tenants were forced to move or downsize due to rent increases. However, in 2021 things have stabilized, with the Dubai property market again becoming attractive as earlier for the global investors. 

The rent freeze law is also perceived as Dubai’s push to become the happiest city to live in the world. Both Dubai and Abu Dhabi are the happiest cities in the Arab region according to the 2020 World Happiness Report. This allowed the UAE to maintain its first place in the Arab world for the sixth consecutive year. Dubai & Abu Dhabi stands at 39th & 35th spot globally in the prestigious World Happiness report. The introduction of rent freeze regulation will further improve the UAEs ranking in this report and will attract more tenants & investors towards the property sector in the years to come.

How is Dubai Rent Freeze Law Different from other Emirates?

A similar rent freeze has been implemented in the other emirates of the UAE, however with modifications. In other emirates, the rent freeze law doesn’t require a commitment from a tenant to sign-up for a three-year lease. Instead, they set out the rental terms if tenants did remain in the same property for such a period. For example – The rent freeze regulation in Sharjah has a similar rent freeze with a very limited increase within leases of three years or less. However, there are no penalties applied on tenants who are not interested in signing up for three years. Several tenants are waiting for the same thing to be implemented in Dubai.

Points which Needs More Clarity:

Both landlords & tenants like to learn whether the Dubai rent freeze law will apply to one particular type of property or all types such as -residential, commercial and industrial. Another point which remains unclear so far is whether the cap will finish after three years or will continue. DLD is yet to shed light on whether this freeze will apply to new rental leases and existing contracts and by when this law will be signed. Both landlords & tenants also need clarity on whether there will be any lock-in periods, coverage of free zones, or any specific types of residential property which will be carved out.

Who will be the Biggest Beneficiary of Rent Freeze Law?

Residential landlords will be the biggest beneficiaries of the rent freeze law. They will now be able to attract many new tenants who were earlier hesitant to rent better and luxurious properties due to the frequent rent increase. 

Furthermore, rising work from home culture due to Covid-19 will further boost the demand of the residential property sector as tenants are spending more time at home. These are signs of glad tidings for the residential sector in the coming years.

Impact on Investments:

Real estate industry experts believe that the rent freeze law will drive colossal investments into the Dubai property market and will also have a favourable impact on the occupancy rate. Furthermore, the law will eradicate all elements of uncertainty and boost tenant’s confidence by allowing them to plan their finances more effectively. The law will also channel more investments into the sector.

According to the Director-general of Dubai Land Department (DLD), Sultan Butti bin Mejren, “the law would ensure that tenants need not move frequently due to rent increases. He said the law would also give landlords a clear idea of income that could be expected. Experts have said the planned changes would steady the market.”

Win-Win Situation for Both Tenants & Landlords:

The draft law to freeze rents has been widely appreciated by both tenants and landlords. According to the Dubai Land Department (DLD), the proposed law will stabilize the market for both tenants & property owners and will minimize rental disputes. 

Several Dubai residents are anxiously waiting for more information on the draft law. The law will provide assurance and peace of mind to the tenants that their rent won’t increase, which will ultimately lead to higher tenant satisfaction. Rent freeze regulation will also provide stability to the tenants in managing their finances. 

Dubai rent freeze law will also act as a boon for the landlords in overcoming the challenges involved in securing tenants due to the oversupply of rental properties. This regulation will also boost the occupancy rate of the properties as most of the tenants leave the properties in search of low-rental accommodations, majorly due to frequent increases in rents. Once the tenant leaves due to an increase in rent, it becomes an uphill battle for the landlords to find a replacement. Furthermore, the losses incurred by the landlord due to vacant property until they find a new tenant are much higher than the profits from the increased rent. It makes sense for the landlords to watch the market as well as the competition while negotiating rents with the potential tenants.  The best bet for the landlords is to convince the tenants to pay a fixed rent for three years to ensure the property remains occupied for the whole term.

The experts view the rent freeze law as a step further to Dubai’s rent cap law which exercises restrictions on increasing rents at renewal. The rent freeze law will facilitate tenants in effectively managing their rental liabilities as the rent will remain constant for the specified term. Furthermore, fixed rent will also encourage the tenants to continue at the same property after three years.