With the increasing demand for rental properties in Dubai, brokers are now charging higher minimum commissions from tenants for affordable properties with annual rents under Dh100,000. Traditionally, commissions account for 2 percent of the sale value and 5 percent of the annual rental, excluding 5 percent VAT. However, in the mid-market and affordable segments, brokers are now implementing a minimum commission fee of Dh5,000 for properties priced under Dh100,000. This change can lead to higher effective rates for tenants in these categories, compared to those in the luxury segment who typically pay the standard commission.
Rents in Dubai have been on the rise post-pandemic, driven by high demand from property buyers and new tenants entering the market due to strong GDP growth creating more employment opportunities. According to real estate consultancy CBRE, average residential rents grew by 21.1 percent in the year to June 2024, with a 22.2 percent growth in average apartment rents and a 12.7 percent increase in average villa rents. Due to this increase in rental prices, commissions paid by tenants to brokerages have also increased over the years.
Deepak Kripalani, founder and CEO of House2Home Real Estate, mentioned that there is no defined law specifying a particular percentage to charge as a commission in real estate transactions. However, he emphasized that the parties involved should be charged equally. While commission rates have remained the same, the actual amount paid by tenants has increased due to higher rental prices in the market. Luxury properties will often result in a higher overall fee due to the commission being charged as a percentage of the contract value.
There is no maximum limit in terms of the commission agreed between the parties before entering into a rental contract in Dubai, according to industry experts. Brokers have implemented a minimum commission fee of Dh5,000 for rental properties with annual rents under Dh100,000 to reflect rising operational costs associated with conducting business. In some cases, landlords are now paying agents the 5 percent commission, especially in luxury developments and sought-after areas, as they aim to attract high-quality tenants in a competitive market by covering these costs and handling pre-contract workload.
As the demand for rental properties in Dubai continues to grow, tenants in the mid-market and affordable segments are facing higher commission costs due to the introduction of a minimum commission fee by brokers. While the standard commission percentage remains at 5 percent, this minimum fee has led to tenants in these categories paying higher effective rates, compared to those in the luxury segment who benefit from the traditional commission structure. It is essential for renters to stay informed about these differences to understand how they can affect overall rental costs.
In conclusion, the real estate market in Dubai is experiencing significant growth in rental prices, leading to an increase in commissions paid by tenants to brokerages. While there is no defined law governing commission percentages in real estate transactions, there has been a shift towards landlords covering commission fees in some cases. With no maximum limit on commissions agreed between parties, tenants renting more affordable properties may face higher overall commission costs due to rising operational expenses in the market. Landlords are increasingly incentivized to cover commission fees to attract high-quality tenants in a competitive market, especially in luxury developments and sought-after areas.
