Key money, an illegal payment practiced in the property market, is becoming big business in Dubai, with a shop in the Gold Souk reportedly changing hands for Dh1 million.
Key money is paid when an outgoing tenant arranges transfer of his lease to a new occupier, who pays him a premium for this service.
Real estate agents and managers said the key money issue also affects residential units in some parts of the city. They said Dh1m was the key money for a shop in the Gold Souk.
"A computer shop in Bur Dubai's Computer Street is available for Dh75,000 per year, but the key money is Dh300,000. There is no receipt or agreement for this illegal payment, demanded by the outgoing tenant who has rented the shop for a long time," said a broker.
The key money amounts increased sharply after many Chinese traders reportedly came to Dubai.
"Many ordinary restaurants and cafetria owners made a fortune at the time by handing over their outlets for huge key money amounts.
"The Chinese traders have realised that they were cheated," added another agent.
Key money does not go to the pocket of property owners. "The key money for a shop in the Murshid wholesale market in Deira is Dh500,000. It is an easy way to make money for brokers and middlemen," added another estate agent. "There are brokers who make Dh100,000 commission from just one key money deal," he added. "The rent of a shop in Al Rafa area, in Bur Dubai, is between Dh50,000 and Dh100,000, however, the key money for it is around Dh300,000," said Naser O, a real estate agent in Bur Dubai.
He said that real estate agents get only five per cent of the annual rent as commission, but can make a fortune from the key money deals.
In residential units, tenants in Bur Dubai are facing eviction because real estate brokers want to lease their flats to new tenants and take large amounts as key money.
"Tenants of 94 flats in our building are asked to accept an increased rent or vacate immediately. Rent for a onebedroom flat in our building was just Dh18.000. It was increased to Dh30,000 and now the real estate manager is asking for Dh50,000.
"The same flat is being given to new tenants at almost the same rent. However, he charges Dh10,000 key money from the new tenants," said a resident of a building in Bur Dubai. He said the building owner who lives in Abu Dhabi is not aware of the "key money" factor. "Rent for a two-bedroom flat in Al Shaab colony is Dh22,000 but tenants can get key money of Dh25,000, which will be covered in one year's rent. Outside the colony, the rent for a similar flat is Dh60,000," said Joseph, a resident of Al Shaab colony.
"In all the colonies created to provide affordable accommodation, the key money rates are the same," he added.
By VM Sathish
© Emirates Today 2006
