Rent cap unlikely to dent inflation

LIMITED IMPACT: New cap of 5% will not bring down inflation in Dubai, EFG-Hermes said. (Getty Images)

A new cap on rent increases in Dubai would have limited impact on curbing inflation in the emirate because a shortage of housing is the main driver of rising prices, EFG-Hermes investment bank said on Sunday.

Dubai, a member of the UAE, will implement an annual rent cap of 5% on January 1, compared with 7% this year, Sheikh Mohammed bin Rashid Al-Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, said in a decree issued through Dubai's Real Estate Regulatory Authority (RERA).

"The reduction in the rent cap will have some impact in helping to bring down the inflation level in 2008, although the main factor determining inflation will remain housing supply," EFG-Hermes regional economist Monica Malik said in a note.

"Dubai rental prices are expected to contract marginally in 2008, when new housing is due to come on the market," she said.

UAE central bank governor Sultan Nasser Al-Suweidi has said rents are the main driver of inflation in the second-largest Arab economy, which hit a 19-year high of 9.3% last year.

"The decree reflects Sheikh Mohammed's concern for Dubai's UAE nationals and residents who are facing great difficulties because of rent increases," RERA chief executive Marwan bin Ghalita said in a statement received by Reuters on Sunday.

The decree prevents landlords from increasing rents for two years after the contract is signed, the authority said.

Price rises in the UAE would accelerate to a new 19-year high of 10.1% this year before slowing to 8.9% next year, a Reuters poll showed this month.

The UAE is creating a special statistics body to monitor inflation, Al-Suweidi said on Thursday. (Reuters)

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