By Mohanad Alwadiya
Dated: November, 2016
Can you please share some details on how rental increases are determined
Initially, your landlord needs to give you the notice of increase at least 90 days prior to the expiration of your current contract. You should familiarise yourself with Law No. 43 which
introduced the following restrictions (summarised) with regard to legally allowable rental increases:
• There should not be any rent increase if the rent for the real estate unit is no more than 10% below the average rent that a similar property commands within a neighbourhood
• The annual rent increases can range from 5 up to 20 per cent according to how much the current rent is less than the market average
• The market average rates are to be determined by the RERA rental index
The implementation of Law No. 43 is necessary to safeguard consumer interest, the overall industry and the economy at large from rampant and unjustifiable rental increases on existing rental contracts.
Is there a state of oversupply in Dubai real estate? How does one know for sure?
It depends on an accurate estimation of construction timelines which are invariably fluid, and the demand for real estate assets due to Dubai’s growing population that is largely driven by overall economic growth going forward. In addition, it needs to comprehend a lag effect from the time that conditions conducive to development are identified by developers and when properties are finally released onto the market.
Given that the economy of the emirate of Dubai is expected to grow at an estimated 5+ per cent annually for the remainder of the decade, and initiatives such as the Expo 2020 are expected to generate an additional 270,000 jobs, the demand for housing and commercial
facilities is expected to grow significantly. Much of the city’s planning comprehends the number of people living in the emirate to grow to 3.4 million by 2020, a 7 per cent annual increase from today’s population of 2.25 million.
How is the Dubai real estate market? Is now the best time to buy, or should I wait for prices to fall further?
The real estate market is an industry full of surprises. The Dubai market has been correcting for several months and is picking up again, as the next five years
are expected to see a strong economic growth in Dubai. My recommendation is for you to start your property search immediately in the places you like as proper due diligence can take time. If you have the cash, we suggest you pay for it outright; however, don’t be afraid to take out a mortgage with varied easy payment plans that will save you considerable amounts of money.The location, surrounding infrastructure, construction quality and developer reputation as well as building amenities or properties close to an iconic development, such as Downtown Dubai or those with close access to the Dubai Metro or Tram usually provide good returns. Finally, be purposeful, persistent, patient and pragmatic, and you are well on the way to making a very sound business decision.
I have just joined the market as a property investor. Can you please help me in determining an optimal rental rate to attract my first tenant?
The simplest way to determine a good rental rate for your property is the sales comparison approach (SCA) which relies on identifying a factor that is homogenous to similar properties. For example, an apartment similar to your planned investment which attracts a monthly rental rate of Dh7 per square foot can indicate the likely cash flow you expect; however, as property managers, we do not advocate this approach.A more comprehensive method is the capital asset pricing model (CAPM) which comprehends levels of risk and opportunity cost as it applies to your investment. It identifies your potential return on investment derived from capital appreciation in addition to net rental income and compares it to other investments that you may be considering. This enables smarter investment decisions and, therefore, is the one that we use as standard procedure.
Question of the Week
I have heard some realtors use certain terms like “GFA,” “BUA” and “NFA.” As an investor, I am left in the dark. What do these terms mean?
Like any industry jargon, there are quite a few confusing acronyms used in real estate but those that you have highlighted relate to the actual dimensions of the property you are buying or leasing. For this reason alone, it is imperative that you understand them and their significance.
The gross floor area (GFA) is the total floor area of a building including any underground saleable or leasable area (such as basement shops), but excluding parking and underground technical areas. Any building used as some form of supporting service plant is excluded from the GFA.
Meanwhile, the built-up area (BUA) is the total area being developed or constructed. It is the gross floor area plus parking plus any service area associated with the subject building or project.
The net floor area (NFA), on the other hand, is the GFA minus the facade of the building (measured from the centre line of glass), plant areas, service risers, building structural core, fire stairs, lifts and lift lobbies, common corridors and common toilets. The individual measurements are used for separate reasons, ranging from purchasing a
building and calculating potential revenues to be derived from selling or leasing a building to estimating cleaning costs.