Dubai: Tenants face increased broker commissions in affordable properties

Dubai brokers are charging an increased minimum commission from tenants for affordable properties under Dh100,000 annual rent as demand for rentals continues to grow at an exponential pace.

Generally, commission accounts for 2 per cent of the sale value and 5 per cent of the annual rental, excluding 5 per cent value-added tax (VAT).

“While the traditional 5 per cent commission applies across the board, its impact is felt differently depending on the property segment. In the luxury market, where annual rents often soar above Dh200,000, tenants typically pay only the standard commission," said Maria Selama, leasing consultant of Huspy.

"However, for those in the mid-market and affordable segments, things are shifting. Here, brokers are implementing a minimum commission fee of Dh5,000 for properties priced under Dh100,000. This can lead to higher effective rates for tenants in these categories,” she added.

Explaining the scenario, Selama said, "A tenant leasing an apartment for Dh70,000 would usually pay Dh3,500 in commission, but with the new minimum in place, they’ll pay the full Dh5,000, resulting in an effective commission of about 7.14 per cent. This change illustrates how tenants in more affordable segments are facing increased commissions, while those in the luxury segment continue to benefit from the traditional commission structure. As a result, it’s essential for renters to stay informed about these differences, as they can significantly affect overall rental costs."

Rents have been on the rise in the post-pandemic period on the back of high demand from property buyers and new tenants coming to the country as strong GDP growth generates more employment opportunities in the country.

According to real estate consultancy CBRE, the rate at which rents continue to grow remained unwavering, where average residential rents grew by 21.1 per cent in the year to June 2024. This increase has been driven by a 22.2 per cent growth in average apartment rents and a 12.7 per cent increase in average villa rents.

Deepak Kripalani, founder and CEO of House2Home Real Estate, said the law says both the parties involved are to be charged equally. “As an agent, we need to balance the deal equally, however, there is no defined law of setting a particular percentage to charge.”

Commissions paid by the tenants to brokerages have increased over the years due to a rise in rentals. Maria Selama of Huspy said landlords do not charge commissions from tenants, but brokers continue to apply the standard commission rate of 5 per cent.

“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 per cent 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.

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 per cent, 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 stated that an emerging trend is the increased responsibility of landlords to cover commission fees.

“More landlords are now paying agents the 5 per cent 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.