My rent was due today.
When I first come to the UAE, my employer gave me a four bedroom apartment in a four-plex in Al Ain. There was a maid's room (the door locks from the outside, not the inside). I have no idea how much it cost. That job didn't last very long, so it's just as well I only bought furniture for two of the rooms. My next job gave me a two-bedroom apartment in a high-rise in Abu Dhabi, but that position was of even shorter duration.
Then, jobless, I came to Dubai in 2002, looking for an inexpensive place to live. Near the bottom of the market is a neighbourhood called Satwa, where one could obtain a small, bare cinder-block room for about $250 a month. Out in another neighbourhood called Al Qusais, there are also some cheap, traditional style houses--i.e., just a hole for the plumbing facility, a nice courtyard for the goat, etc. for about the same price.
I elected to take what looks like a normal, Western one-bedroom for $600 (then, €700). After I found a job, I discovered most of my colleagues were paying almost twice that much for luxury two- and three-bedroom apartments, but I couldn't see why I needed any more apartment than I had.
From the British influence, rent is paid quarterly, so, every three months, I took $1,800 to the rental office. This lasted just over two years.
The Ruling Family owns all land in Dubai. Sometimes (rather frequently, in fact) they give permission for a member of their tribe to build an apartment building, in exchange for a percentage of the rent. Before 2004, rent was set at a level to give a reasonable return on the initial investment, and remained mostly fixed, with the occasional 10% rise. Rent controls lead to results which basic economics says are rather predictable.
After I had been living in the building for awhile, I met some of my neighbours, and discovered that they sub-leased by the month, rather than by the quarter, and paid almost $2,000 a month. It seems that several enterprising businessmen leased apartments at $600 and sub-leased at $2,000. There was plenty of demand, even at $2,000 per month, and the building was filled. But those of us who leased directly from the owner's agent only paid $600 a month.
I had discovered that, in the days of fixed rents, almost every apartment building had several apartments leased by entrepreneurs who illegally sub-leased, sometimes to another entrepreneur who sub-sub-leased. I met a real estate broker who tried to convice me to move, so he could rent out my apartment for $1,000, and sub-lease me an apartment for $550 that he had leased for $350. Since other sub-lessees were paying $2,000, whoever got my apartment would be grateful, and, he felt, I should be grateful to save $50 a month (though for a smaller, older, shabbier place). I didn't move.
Landlords eventually complained to the Rulers that they were losing money, as in, 'The brand new luxury building next to mine charges $1,100, and I'm only getting $700 for the apartments in my old, rather run-down building, so I'm losing $400 on every apartment every month.' And the landlords didn't seem to know about the sub-lessors, who were charging $2,000, or they would have been losing $1,300 on every apartment every month. So the freeze was lifted, and landlords were told they could charge 'market rates.' They weren't sure how much would cause their building to empty, so some started by raising rents just 10% to see what would happen. Braver landlords raised rates 85% or more. But there were no cheaper places to move, anywhere in Dubai. If the current tenants moved out, there were lots more ready to move in. So the higher rates not only held, occupancy increased as more people flooded into Dubai, and landlords asked even higher rents.
Eventually, the rapid increase in rent made the BBC World Service, and the Ruler, His Highness Sheikh Mohammed bin Rashid Al Maktoum announced a 15% cap on rent increases. Some landlords started offering 3-year leases, fearing a collapse. Others plan to increase 15% at every opportunity. A few have tried increasing more than 15%, threatening to create problems for any tenants who complain.
The broker who wants me to move and give him my lease keeps telling me about Saudi Arabia. I remember, in the '70s, I was looking for a job and was told that jobs in Saudi Arabia paid $75,000. 'So how much is rent?' '$100,000 per year, but that's paid for you, you get to keep the entire $75,000.' I said I'd go, but they only wanted petroleum engineers, which I wasn't. Today, that $100,000 per year apartment goes for less than $10,000 a year. Granted, it's 30 years older and hasn't been well maintained, but still.
Given the high rents, the Government of Dubai is 'selling' apartments and villas. Many of these villas initially 'sold' for less than $120,000 (€140,000) and are now 'selling' for more than $270,000 (€225,000). Since there are no laws regarding real property, other than the ones that say the Ruling Families own all real property, no one really knows for certain what these 'sales' mean. Some people have made a lot of money, and others have lost.
There are only two ways people have lost money: Several people purchased property that was not actually being sold, similar to buying a Brooklyn Bridge (the deeds certainly looked
legal). If the seller was related to the ruling family, the payment was declared legal, but only as rent, not as a purchase; if the seller was not related to the ruling family, the sale was declared a fraud, and the seller was sought to 'help the police with their inquiries.' Such sellers as were found are now in gaol, but most were faster than that.
The other way to lose money was to put 10% down, then try to re-sell. The problem is that all re-sellers must have permission from the original, government-authorized seller, which hated to sell something and see it re-sold the next day for 25% more than the original sales price. So the 90% balance came due, but the permission to re-sell did not. If the buyer could not raise the 90%, the properties were foreclosed (then re-sold by the government-authorized seller for much more than the original offer price), and the buyers lost their 10%.
So far, the two leading builders, Emaar and Nakheel, have sold out all their properties within days of putting them on offer, sometimes within minutes, and all their properties are selling at large premiums to the original sales prices. Whether this will continue is anybody's guess.
One broker I know tells all property 'owners', 'It will be just like Saudia. Properties will fall 90% within two years. Sell while you can, take any offer you can get.' He tells all non-owners, 'How can you afford not to own property? Dubai property is only going up. You can't fail to earn at least 25% on anything you buy, even at current prices. And you're just throwing your money away if you're renting'
I'm sure that broker will be proved correct.
But today I had to pay the rent, and I'm now paying $1,200 a month for my $600 apartment.