In 2008, landlords dictated the terms. But while the housing market continues to change in Dubai, there is opportunity to negotiate the terms of your rent contract.
Tenants hold the aces in tough financial climate
After persuading my landlord to drop the rent on the two-bedroom apartment I share in Dubai's Al Barsha district, I was feeling fairly pleased with myself. My housemate and I had managed to get him to agree to not only reducing our rent for the second time in a few months - a total discount of over 40 per cent - with the added bonus of paying by monthly cheques, but at the same time we moved to a more spacious apartment on a side of the building with a better view.
However, when I proudly relayed this information to a friend, who shares an apartment a floor above me, I had the wind knocked from my sails. She told me she'd successfully engineered a 50 per cent discount on her apartment. These negotiations might seem surprising. But as I've recently discovered, the price you pay for your apartment in today's tough financial climate can indeed come down to how shrewd a negotiator you are. In fact, property analysts say haggling over rent terms is becoming increasingly common in Dubai.
"Given the current and anticipated supply in 2010, it's our position that rents on average will decline and the terms will become more flexible," says Jesse Downs, the director of research and advisory at property research firm Landmark Advisory. Landmark Advisory further estimates that there may be as many as 55,000 spare units on the market in Dubai. It's all a far cry from the summer of 2008, when I moved to Dubai and unwittingly plunged into one of the hottest property markets in the world. Back then, property was expensive and in short supply, with available units typically being snapped up in the space of a few days. Negotiation was rarely an option, as letting agents knew for every person wavering over a decision on a property, somebody else would be happy to swoop in at the asking price.
Disappointment followed disappointment until, two months on, I eventually put down a deposit for a modest but bright and well-equipped apartment in Al Barsha with a friend for Dh140,000 a year. Paying for this required taking out a hefty bank loan, as the agent demanded one cheque for the entire year's rent. Back in 2008, virtually every new tenant was required to pay with one cheque. Eight months later, as the economy was buffeted by the affects of the global financial crisis, job losses began to mount and our building began to empty rapidly. Despite this outflow, inexplicably, the construction work continued in our area, and we soon had a row of newly-built accommodation blocks within a stone's throw from our building.
Inquiries showed these new buildings were charging as much as 40 per cent less rent than we were paying. And it dawned upon us that not only had we locked ourselves into a 12-month tenancy at pretty much the height of the market, but that we had nothing to lose by appealing for a reduction. Our case was helped when the letting agent fled the country with his girlfriend and, allegedly, a large wad of tenants' money in tow. Without him, we could negotiate directly with the landlord, who, it turned out, was an agreeable chap.
We emailed him, pointing out that now our rent was currently above guidelines for the area from the Dubai Real Estate Regulatory Agency (RERA), and explained that my housemate's employer had slashed the amount he received in rent allowance in line with market conditions, leaving him struggling financially. With four months left on our tenancy, we said we'd be happy to sign another 12-month tenancy under either two options. Option one was monthly cheques with an annual rent of Dh95,000 or, option two, four cheques with Dh90,000 in yearly rent. After ignoring our request, we eventually called him and he agreed to the second option.
Another eight months on, and with Dubai's property market still in freefall, we emailed him for a second time and negotiated a further discount of nearly 10 per cent for the remainder of our tenancy, with the added bonus of monthly cheques and a bigger apartment to boot. Our appeal for further clemency was reinforced by a threat that we would eventually leave at the end of our tenancy if we didn't receive a discount and incentives.
Rent statistics suggest an increasing number of people may be having success at convincing their landlords to lower their rents. Between the first quarter and third quarter of 2009, rents have declined by approximately 30 to 40 per cent in Dubai, according to figures from Landmark Advisory. The firm says its seen a decline in rents of around 32 per cent in Dubai Marina, 37 per cent in Jumeirah Lakes Towers (JLT), 27 per cent in International City and 33 per cent in Discovery Gardens.
With property experts predicting a recovery in the property market may still be some way off, many tenants find themselves with the luxury of considering either trading up or haggling for even lower rent on their existing property. "Trading up is an option," says Craig Plumb, the head of research, for property services firm Jones Lang Lasalle MENA. "There's a clear pattern of areas. Within areas, people are moving from small apartments to larger ones and even villas and people are moving from Discovery Gardens to JLT and from JLT to Dubai Marina."
As a result, Re/Max, the UAE property broker, reveals that parts of JLT have a 15 per cent occupancy rate. The company further estimates that as many as 60 per cent of renters in the city have successfully negotiated a discount or improved terms on renewal of their contract over the last three months. However, don't expect to be swapping your cramped studio apartment in International City for a penthouse suite in the Marina for the same price.
"In Dubai Marina, rents have held up a little better and developers which are true to their word and finish buildings well have 90 to 100 per cent occupancy rates, showing people are willing to pay for quality," says Adel Hamaizia, the business development manager of Re/Max Abu Dhabi. Those opting to stay put should definitely consider negotiating, Mr Plumb adds. "If you're in an existing property it's in your interests to negotiate as prices could rise by the time you come to renew your lease," he says.
However, properties in upmarket areas are likely to remain off the negotiation table as demand holds up. Buildings in Downtown Burj Dubai with high occupancy rates such as Burj Residences and South Ridge, along with Marina Promenade and Al Sahab Tower in Dubai Marina and Tiara Residence on Palm Jumeirah, are examples of areas where asking for a rent drop are likely to prove fruitless, says Louise Pitt, director of corporate leasing, for property broker Landmark Properties.
Dubai Marina, Jumeirah Beach Residence, JLT and Discovery Gardens are among the areas considered the most promising for successful rental negotiation. Equally, securing a discount is likely to remain a distant dream for people living in Abu Dhabi, where high levels of job creation by some of the capital's biggest employers is heaping pressure on an already short supply in the property market. A housing deficit of around 30,000 units exists in Abu Dhabi, says Mr Hamaizia. But in Dubai, two things appear certain when it comes to rent negotiation in the housing market; firstly, that the one-cheque culture is over. And, second, the upper hand now lies with tenants, for now at least.