The reality is that Dubai's residential market has now shifted in favour of tenants, says Danube's Rizwan Sajan

Home rents and freehold property prices depend on supply, demand and other market conditions, and should therefore be left to market forces, unless unnatural or drastic changes start to hurt tenants, at which point regulators step in.

That is how mature real estate markets work around the world. In those countries, rent laws are designed to protect tenants rather than landlords. Tenants usually outnumber landlords, who are seen as well off in their own right, so rent laws in developed countries tend to be tenant-friendly. Over the past few decades, the UAE's real estate market, especially Dubai's, has reached a similar level of maturity, and its regulations should reflect that.

Why Dubai Introduced a Rent Cap

Dubai introduced a rent cap around 2005–2006, when rents were rising steeply because of high demand. At the time, the economy was growing at around 14–16% a year, and thousands of jobs were being created every month by a boom fuelled by real estate and construction.

The influx of people far outstripped the supply of new homes. Rents rose by 20–40% a year, forcing middle-income families to move to cheaper neighbourhoods in Sharjah and Ajman. Investors had started building apartments and villas for freehold sale, but deliveries had yet to arrive on a large scale. The rent cap was therefore an important intervention to protect tenants at the time.

From a Sellers' Market to a Buyers' Market

The market has changed a great deal over the past 15–16 years. It began to soften quietly from 2016 as supply gradually caught up with demand, and by 2018–19 there were signs of oversupply, leading to corrections in prices and rents. Both remained under pressure at the start of 2020, when most landlords began cutting rents to keep their tenants.

The Covid-19 pandemic made matters worse, bringing lost income, business closures and job cuts. After the lockdown eased in 2020, many families returned to their home countries, leaving homes empty. Prices and rents fell steeply last year, forcing landlords to rethink their strategies, and rental returns dropped from 6–8% to 4–5%, though that is still high by global standards.

Can a Rent Freeze Help Landlords?

Property prices are stabilising as foreign investors have returned to the market since January, but rents have yet to stabilise. In this context, a rent freeze law would serve only to protect landlords' interests. But can a law stabilise rents? Consider the possible scenarios.

If a tenant finds the landlord's asking rent high compared with falling market rents, can the law force the tenant to stay beyond the end of the tenancy contract? No. The tenant can move to another apartment, and there is no shortage of units. And if the tenant is free to move to a home that suits their choice and budget, can the draft law help the landlord? Again, no; it would simply encourage tenants to move.

Contrary to many reports, one-bedroom apartments start from Dhs20,000 a year in some Sharjah neighbourhoods and Dhs35,000 in Dubai, and rents may fall further given the abundance of supply.

Accepting the New Norm

Many landlords may not realise it, but rental income in Dubai is still higher than in most developed markets. A Dhs1 million two-bedroom apartment rents for around Dhs50,000 to Dhs60,000 a year, a 5–6% return, which is still better than most markets.

Landlords are used to raising rents when demand is high, but they now need to adjust their mindset to a low-demand market and a new norm. We are at the lower point of the real estate cycle, and until demand picks up, we need to accept the current reality. A landlords' market has become a tenants' market. That is the reality, and we should face it.

Rizwan Sajan is the founder and chairman of Danube Group