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New good conduct certificates will help landlords evaluate tenants

Dubai Rental Disputes Centre (RDC) has launched a Rental Good Conduct (RGC) certificate service designed to reduce disputes between tenants and landlords.

From the property owner’s perspective, it could help to identify tenants who may have had problems honouring rental cheques in the past.

The new service implements the initiatives offered by the centre to reduce rental disputes and was initiated following the monitoring of several cases where a tenant rents a unit and only pays the first installment of the agreed total cost,” said HE Judge Abdulqader Mousa, Director of RDC.

At the end of the contract, the same person rents another unit and repeats the act in other properties, exposing the leaser to severe losses. This service will assist real estate management companies in finding rental information of a person they intend to contract with and avoid such mishaps.”

You can access the service by downloading the RDC application from the Apple Store or Google Play, and choosing one of three options: inquiry on tenant, inquiry on leaser or inquiry on request status.

As well as helping property owners, the service would also alert tenants to potentially problematic landlords. Tenants can also find out if there is a complaint against them, a situation that can result in travel bans or account seizures.

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Rental rates stronger than sales values in Dubai in Q3

Now may be a good time to invest if you want to buy a property in Dubai and let it out.

According to Chestertons’ Q3 2018 Observer, average apartment and villa prices were down 6% from the previous quarter. Average rents declined at a lower rate, down 4% in Q3 compared with Q2.

The decline in values is a consequence of additional supply coming to the market, giving buyers and tenants more choice. Around 10,000 units are expected to be delivered before the end of the year and 70,000 units before Expo 2020. This pipeline of new supply should help to keep sales and rental rates under control.

The headline figures do, of course, disguise disparities between areas.

In terms of sales values, apartments in areas such as Dubai Silicon Oasis and Dubailand remained resilient, with only a 2% decline in price since the previous quarter. The highest declines have been seen in Dubai Marina at 10% and Discovery Gardens at 13%.

Villas in The Lakes and Palm Jumeirah witnessed the lowest price declines of all areas at 4% and 5% respectively. The biggest declines of 8% were witnessed in Arabian Ranches and Jumeirah Park.

If you are looking to buy, developers are trying to make it attractive, Chestertons notes, “with buyers enticed by attractive incentives including 5-year post-handover payment plans, rebates of registration fees and guaranteed rental returns amongst others”.

The biggest declines in apartment rental rates were seen in Discovery Gardens and DIFC at 7% and 6% respectively. If you own in established communities like Dubai Motor City, The Greens and Dubai Silicon Oasis, you’ll have seen smaller declines in rental values of 2-3%.

In the villa market, the biggest rental declines were seen in Al Furjan at 6% with Palm Jumeriah and Jumeirah Islands at 5%.

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Nearly 8K residential units set to enter Abu Dhabi market

Around 3,200 freehold residential units were handed over in Abu Dhabi in Q3, with around 7,700 scheduled for handover in the next six months.

According to Cavendish Maxwell, the majority of the residential stock, including both apartments and villas/townhouses, were handed over in Al Reem Island, Al Reef and Al Raha Beach. The key locations for upcoming supply are Saadiyat Island, Yas Island and Al Reem Island.

Meanwhile, investors in Abu Dhabi’s freehold property market are being cautious and taking their time over purchases, according to Cavendish Maxwell’s Q3 2018 Abu Dhabi Market Report.

‘According to the Property Monitor Index, apartment sales prices in investment zones have declined by 2.7% on average over the last 12 months, whereas prices declined marginally by 1.7% over the quarter. Villa/townhouse sales prices also followed a similar trend, with quarterly and annual declines on average of 2.8% and 4.2%, respectively,’ the chartered surveyor and property consultant wrote in its latest report.

Softness at the higher end of the market has resulted in more launches targeting the middle segment, according to Cavendish Maxwell. Pixel Towers in Al Reem Island was launched by Imkan in Q4 2017 with studios starting as low as AED 560,000. Among more recent launches was the Al Ghadeer Phase II by Aldar with studios starting as low as AED 350,000 and two bedroom villa/townhouse prices starting at AED 1 million.

According to the Property Monitor Index, residential rents in freehold areas have registered a 12 month decline of 5.6% on average, where apartment rents in Al Reem Island and villa/townhouse rents in Al Raha Gardens and Saadiyat Beach declined by more than 6%.

One bedroom apartments on Al Reem Island can now be rented at AED 84,000 on average, with rents for this unit type declining by 6.2% over the last 12 months. Three bedroom villa/townhouse in Al Raha Garden are being rented for AED 150,000 on average, an annual fall of around 6.2%.

‘Meanwhile, tenants continue to be spoilt for choice and are migrating to communities and buildings with superior facilities, thus putting further pressure on older stock,’ Cavendish Maxwell noted.

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Landlords Encouraged To Focus On Quality As Rents Continue To Fall

Rents continued to drop in Dubai in Q2, while sale prices of apartments and villas remained largely flat.

Average rental rates for apartments and villas fell 4% and 2% respectively quarter on quarter.

The average selling price of an apartment was down 1% quarter on quarter, while the average price of a villa remained the same across Dubai.

Chestertons, which revealed the figures in its quarterly Observer report, said that landlords seeking to shore up yields should focus on quality.

“The average decline in rental rates can be attributed to several factors, including greater choices at reduced prices,” said Ivana Gazivoda Vucinic, head of consulting and valuations and advisory operations, Chestertons MENA.

“The focus for developers and landlords going forward should be on quality, as tenants proactively seek out cheaper options or move to better quality units for the same price as their existing units.”

In terms of apartment sales values, Business Bay saw a 4% jump in prices following a 9% fall in Q1. Owners in Jumeirah Village Circle enjoyed a 6% increase in average sales value in Q2 following an 8% fall in Q1. International City saw the steepest decline, with average sale prices there down 7% over the previous quarter.

Palm Jumeirah was the only area of Dubai where villa sales values went up, by 4%.  Arabian Ranches, Jumeirah Park and The Lakes all saw small declines, while sales values in The Meadows and The Springs remained flat.

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FACTS Here’s How VAT Will Affect Your UAE Rental Contract

The UAE’s implementation of value-added tax (VAT) is just weeks away. And while the UAE government has published a pretty comprehensive list of exactly which products and services will be taxed, some confusion still surrounds tax on rental contracts.

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Happily, Propertyfinder Group has shined a light on the matter. And the bottom line is that, no, you won’t have to pay VAT on your rental contract.

“The biggest confusion we are seeing in the market is the mixing up of a real estate transaction (rent or sale) with the service of a real estate broker, whereby for a commercial building both will incur a 5% VAT and for a residential building the first one will not incur any VAT as opposed to the second one (5%),” said Simon Comina, Propertyfinder’s CFO, in a statement.

Essentially, a real estate transaction (a rent or a sale) won’t have VAT levied on it if it’s a residential building. However, there will be VAT added on to the real estate broker’s fees or services.

So, for example, if you’re renting an apartment for AED 100,000, you’ll still only have to pay AED 100,000 to rent that apartment. However, the estate agent will likely charge you AED 5,000 in fees to create the rental agreement (5% of the rental price). The 5% VAT will be applied to that AED 5,000, so you’ll have to pay the estate agent AED 5,250 in total – inclusive of VAT.

And if you’re the private landlord of a residential apartment or villa, you won’t need to register for VAT.

That said, commercial property leasing is a little different. Say you’ve got an office space or a warehouse, and you want to rent it to another business, you’ll have to add 5% VAT onto the cost of the lease. And the estate agent will add 5% onto its fees as well.

Check out our comprehensive guide to VAT in the UAE here.