Dubai landlords forced to let the good times roll

Is this a great time or what? That was a slogan the senior executives at the doomed MCI Worldcom adopted for one of their marketing campaigns in the 1990s. I heard it last month from a property agent showing me around rental villas in Dubai. Like many families whose existing villa rental contracts were expiring, we decided to take advantage of the more favourable conditions for tenants in the rental market and look for a better deal.

After a relatively painless move last week, primarily down to the project management skills of my wife, we've settled into our new villa. However, somewhat surprisingly, I'm left feeling rather sad for my former landlord and others in his position. The rental market in the span of 12 months has changed drastically, with rents falling anywhere between 30 and 70 per cent, depending on which figures you buy into.

Landlords, particularly those who recently built new compounds and villas when the cost of construction was extremely high, are not going to be breaking even for at least 10 years. Fortuitously, those building now, with value for money and quality in mind, can take advantage of lower construction costs. As for me and my pangs of guilt, perhaps I'm suffering from "Stockholm syndrome"; a condition in which former hostages show sympathy for their captor and begin to defend them. According to the FBI this occurs in about 27 per cent of hostage cases.

Stockholm syndrome is a behavioural disorder found in situations where the division of power within a relationship of any kind is severely unequal. Although relevant to the hostage-captor relationship, it can equally be applied to commercial relationships between an organisation and its customers, such as a monopolised electricity market in which there is only one supplier in town, or a patented lifesaving drug in which the pharmaceutical company has a lock on the price and supply for at least 10 years before generics can come into the market and serve low-income geographies.

I think it also sums up very nicely the landlord-tenant relationship that existed in the Dubai rental market for the past few years. Tenants were treading water while landlords pushed the boat out further by upping the price, like a bidder at a Sotheby's auction with a twitchy arm. Rents rose weekly with no added value on offer and tenants were head-locked into signing over one annual rental cheque upfront, the day after viewing the property.

It had become a relationship where the customer - the tenant - was akin to a hostage because of the unequal relationship with the landlord. The customer as a "hostage" is the term given by Professor W Earl Sasser, the co-author of The Service Profit Chain, who says this type of relationship is one in which the customer has low satisfaction but high loyalty, because they are trapped and unable to switch.

Prof Sasser describes other loyalty states, such as the one in which the customer is a "mercenary" as they have high satisfaction but low loyalty, because they can come and go as they please. Or the customer as a "defector" with low satisfaction, low loyalty, as they are unhappy and leave the relationship. Finally, he suggests the relationship that organisations should aspire to is one in which the customer is a "loyalist". They have high satisfaction, high loyalty and they will stay and be supportive.

Since the division of power within the landlord-tenant relationship in the Dubai rental market is no longer so skewed in favour of the landlord, there are many tenants who are now moving away from being "hostages" to becoming "defectors". These "defectors", myself being one, feel for the first time that the balance of power has shifted to a state of equilibrium. In the exceptional circumstance where a "hostage" has turned "loyalist", it is generally because the landlord has been flexible on price, payment terms and maintenance agreements.

And ultimately this new scenario refocuses all landlords and tenants on the oldest rule in selecting property - location, location, location. Tenants can uniformly ask of their prospective landlord: "Is the property in close proximity to transport links, such as a main road as well as public transport? Is there a local community and is it stable economically and socially? Are the local businesses, shops and municipal services close by? Are schools close enough for Junior not to have to spend hours going to and from class? And of course, are there any hidden service charges that the charming estate agent forgot to tell me about?"

If they don't receive satisfactory answers, there are many other properties to choose from. More astute landlords will begin marketing their properties by demonstrating these benefits. Landlords burdened with poor location are really stuck. Unless the tenant is wholly satisfied they will defect and go elsewhere, there are plenty of "To Let" boards up all over town. If landlords do not offer outstanding value, when it comes to covering all maintenance issues, then tenants will defect. If landlords do not move to monthly or quarterly billing, then tenants will defect. And finally, if landlords do not listen attentively and respond to feedback, then tenants will defect.

The vast majority of landlords need to go back to adding a personal touch to the tenant relationship. Either they instruct the property management company, most of which are holed up in dilapidated buildings in the old part of Deira, to become customer-centric, or they deal directly with customers to avoid them defecting elsewhere. And, yes, as a tenant I've got to agree that this is a great time, or what!

Rehan Khan is a business consultant and writer based in Dubai business@thenational.ae