Abu Dhabi rent cap 'largely symbolic' in subdued market

Boss of real estate brokerage says gov't move to cap rents will have no effect until values bottom out

Abu Dhabi’s recent reintroduction of the city’s rent cap will do little to tackle the shortage of affordable housing in the UAE capital, according to a real estate broker.

Ben Crompton, managing partner of Crompton Partners, said reintroducing the rent cap "will have no effect until rents bottom out and start to rise again", adding that it is a "largely symbolic measure".

Abu Dhabi rents for both apartments and villas fell in most, if not all, neighbourhoods last year, according to propertyfinder.ae data, making the return of the rent cap a surprising move.

In December, Abu Dhabi made the move to re-introduce the cap, limiting rent increases to 5 percent per year. The cap was first applied in 2006, but was abolished in late 2013, a move that helped spark steep rent rises as a broader rebound in the UAE property sector took hold in Abu Dhabi.

Values are in decline after Abu Dhabi’s government reined in spending in response to an oil price slump that began in mid-2014.

“Any cut in spending is keenly felt across the Abu Dhabi economy and affects rents. Lower rents and lower job security in turn affects sales,” said Crompton.

From January to August, apartment rents dropped 14 percent on both Reem Island and Al Raha Beach, 8 percent on Saadiyat Island and less than 5 percent at Al Ghadeer and Al Reef.

Villa rents also plunged as much as 14 percent over the same period although decreases vary across the city.

“High-end villas are very popular with the sectors that are still hiring, such as defence and financial companies, and as a result have kept much of their value,” said Crompton, noting slumping demand has been most acutely felt near the Corniche and the headquarters of the oil companies.

“Reintroducing the rent cap will have no effect until rents bottom out and start to rise again. Currently it is a largely symbolic measure.”

He added: “A much better way to manage rents is to build more property. Supply keeps rents down in a much more healthy and effective manner.”

Only 3,100 newly completed units were added to the city’s housing stock last year, bringing the total to 248,000, JLL estimated in a recent report.

The consultants forecast only a further 12,000 homes in Abu Dhabi will be added in 2017 and 2018 combined. That would mean the capital’s inventory would have increased by only 6.6 percent from 2014 to 2018. Dubai’s stock, in contrast, is slated to expand 17.1 percent over the same period.

The rent cap’s return follows Abu Dhabi introduction of a series of new rules governing the property sector but Crompton said more reforms are still required.

“A code of ethics for real estate brokers would be a huge step,” he said. “An enforcement agency to hear complaints and rules regarding how many brokers can market units would also revolutionise the sector.”

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