Dubai brokers are now imposing a higher minimum commission on tenants for affordable properties with annual rents below Dh100,000, as the demand for rentals continues to surge at an unprecedented rate. Typically, commission is set at 2% of the sale value and 5% of the annual rental, excluding the 5% value-added tax (VAT).
"While the customary 5% commission is applied universally, its implications vary based on the property segment. In the luxury market, where annual rents frequently exceed Dh200,000, tenants generally pay only the standard commission," explained Maria Selama, a leasing consultant at Huspy.
"However, for those in the mid-market and affordable segments, the landscape is changing. Here, brokers are enforcing a minimum commission fee of Dh5,000 for properties priced under Dh100,000. This can result in higher effective rates for tenants in these categories," she added.
Selama further elaborated, "A tenant leasing an apartment for Dh70,000 would ordinarily pay Dh3,500 in commission, but with the new minimum in effect, they’ll pay the full Dh5,000, resulting in an effective commission of about 7.14%. This change highlights how tenants in more affordable segments are encountering increased commissions, while those in the luxury segment continue to benefit from the traditional commission structure. Consequently, it’s crucial for renters to stay informed about these disparities, as they can substantially impact overall rental costs."
Rents have been escalating post-pandemic due to robust demand from property buyers and new tenants entering the country, fueled by strong GDP growth that creates more employment opportunities. According to real estate consultancy CBRE, the rate of rent growth has remained steadfast, with average residential rents increasing by 21.1% in the year to June 2024. This surge has been driven by a 22.2% growth in average apartment rents and a 12.7% increase in average villa rents.
Deepak Kripalani, founder and CEO of House2Home Real Estate, noted that the law mandates equal charges for both parties involved. "As an agent, we need to balance the deal equally, however, there is no defined law on setting a specific percentage to charge."
Commissions paid by tenants to brokerages have risen over the years due to escalating rentals. Maria Selama of Huspy mentioned that landlords do not charge commissions from tenants, but brokers maintain the standard 5% commission rate. "Although this percentage remains unchanged, there is a perception among tenants that overall costs have risen due to increased rental prices in the market. As a result, while the commission percentage has not increased, tenants may feel the impact of higher rental rates on their overall housing expenses," she stated.
"A tenant renting a villa for Dh500,000 annually would pay Dh25,000 in brokerage fees, which is straightforward. However, tenants in the mid-market or affordable segments may end up paying a higher effective percentage due to the introduction of a minimum commission fee. This means that while luxury tenants face a clear 5% commission, those renting more affordable units might feel the pinch more significantly," she continued.
Rupert Simmonds, leasing director at Betterhomes, said commission rates have remained the same, although, due to higher prices, the actual amount paid often increases. "As the commission is charged as a percentage of the contract value, luxury properties will often result in a higher overall fee. Some agencies will charge a minimum fixed commission amount for lower-value transactions, basically, where the cost of the work does not meet the value of the percentage charge," he said.
With the commission being charged as a percentage of the rent, he said the commission will be at a higher charge, based on the higher rental value of the property. Is there a maximum limit? Rupert Simmonds said there is no cap in terms of the commission which is agreed between the parties before entering into the contract.
Meanwhile, Maria Selama said, "While the standard commission percentage remains at 5%, this minimum fee reflects rising operational costs associated with conducting business, such as higher portal advertising fees and other expenses. As a result, tenants renting more affordable properties may face higher overall commission costs than they would have in the past."
Maria Selama also highlighted an emerging trend where landlords are increasingly bearing the commission fees. "More landlords are now paying agents the 5% commission, reflecting a shift toward global norms, where the majority of the workload pre-contract — such as marketing the property, arranging viewings, and managing negotiations — is typically on the landlord's side. This approach is becoming especially common in luxury developments and sought-after areas, where landlords are incentivized to handle these costs to attract high-quality tenants in a competitive market," she added.
