Dubai Expat Rents Exceed Pay

           

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arah El-Said is relocating for the fourth time since coming to Dubai from New Jersey in 2008. The mother of two and her husband will pay 43 percent more for a similar-sized apartment, moving their children away from friends after disagreeing with their landlord over terms of a new lease.

“This is insane,” said El-Said, who pays 8,750 dirhams ($2,400) per month for an apartment on the Palm Jumeirah manmade island. “It’s like you have to move house every two years. You feel no stability in where you live and you’re always at the mercy of landlords whose sole interest is making more money.”

Rent increases and the conflicts that go with them are climbing in the city of about 2.2 million, rattling a workforce that’s mostly foreign, as a rebounding property market and a surging economy embolden landlords, Bloomberg reports. Buying a home has become more difficult after the central bank damped lending for most of the year by proposing tighter mortgage restrictions and imposing new transaction fees.

 

 

Rents rose by 15 percent for apartments and 14 percent for single-family homes on average in the past year, Jones Lang LaSalle Inc. wrote in an October report, citing data compiled by researcher Reidin.com. Salaries for non-government employees increased 5.6 percent in the United Arab Emirates during that time, according to a survey of more than 200 companies by Mercer LLC, a New York-based consulting firm.

“Dubai should be worried about rising rents because there is no upside to the government or society,” said Farouk Soussa, the London-based head of Middle East economics at Citigroup Global Markets Ltd. “It goes against Dubai’s best economic interest because it erodes its competitiveness.”

Conflicts Rise

Legal disputes over leases have jumped since the property market began to rebound, Sultan Bin Mejren, director general of Dubai’s Land Department said in September. The regulator in September said it will create a rental dispute tribunal to simplify the way disagreements are handled and more than double the capacity to about 250 cases a week. The purpose of the center is to achieve “social and economic stability for all concerned,” the Land Department said in a statement.

Dubai’s economy is headed for the fastest expansion in six years as it benefits from an increase in hotel occupancy and manufacturing. Gross domestic product grew 4.9 percent in the first half, compared with a 4.4 percent increase in 2012, the statistics office said Nov. 6.

Employers Concerned

Rents are “definitely becoming a concern for companies as prices have shot up in the past 12 to 18 months,” said Nuno Gomes, who advises businesses on employee compensation for Mercer. “If things continue at this pace, the allowances that are being provided won’t be enough.”

Average annual rent for a mid-range three-bedroom home in Dubai is equal to about $58,000. Rents range from $46,000 to $92,000 a year depending on the quality and location, according to Cluttons LLC. That compares with $46,344 a year in Manhattan, where rents, charged monthly, rose 0.2 percent in 2012 to an average of $3,862 per month.

Rents started to climb in Dubai’s more sought-after developments in 2012 and the gains spread to most parts of the city this year, Jones Lang said in a report last month. Increases will continue over the next 12 months, although at a slower rate, it predicted. The broker estimates that about 45,000 new homes will be completed in Dubai by the end of 2015, tempering rent growth in a market that already has “significant” vacancies.

Mortgage Effect

Leasing costs in Dubai rose this year amid expectations that the government would step in to cool the emirate’s surging homebuying market. Mortgage lending stalled in the first quarter after the United Arab Emirates central bank said it would cap the value of mortgages taken by foreigners to 50 percent of a first home’s value.

After holding talks with lenders, the central bank in October limited mortgages to foreign buyers to 75 percent of the value of a first home valued at 5 million dirhams or less. It also capped loans for second homes and barred down payments made with credit cards or personal loans. Dubai doubled property sales fees to 4 percent from 2 percent in October.

“Making it more difficult to buy will force more people to stay in the rental market,” said Craig Plumb, head of Middle East research at Jones Lang. “Rents are going up a bit more than prices at the moment, which makes properties that are completed and rented more attractive investments.” That pushes up values and leads to more landlord-tenant disputes, he said.