E-mail Article
Printer Friendly
Share Article
Abu Dhabi considers new 3% rent cap
Abu Dhabi is considering tightening an annual cap on rent increases for properties in the emirate to three percent from five percent.
The Abu Dhabi Executive Council is studying the proposal submitted by the Abu Dhabi Council for Economic Development (ADCED) and supported by the Abu Dhabi Department of Planning and Economy, Emirates Business reported on Wednesday, citing a senior official.
"ADCED has submitted a detailed study to the (executive council) on the harmful effects of high rents, especially in terms of growing inflation and decreasing foreign investments," the paper said.
Inflation in Abu Dhabi hit 12.9 percent in the second quarter, up from 11.5 percent in the first quarter, according to preliminary data provided by the Abu Dhabi planning department earlier this month.
It later retracted the data and said it was working on a new consumer price index.
Dubai also introduced an annual rent cap of five percent this year.
Quick Links(Residental)
Filter by address:
Comments 1-9 of 9
Posted by RAPHY JOHN, ABU DHABI, UAE on 28 September 2008 at 09:15 UAE time
In this context I wish to seek a small clarification....Does the landlord have the right to evict tenants after the completion of 3 years so that he can bring in another tenant at the prevailing market rent instead of renewing the contract with the existing tenant by applying the 5% increase as stipulated by the law ??
Posted by Rainigade, Dubai, UAE on 26 September 2008 at 15:45 UAE time
Frank - may I just say that I disagree with you based on real life experience.
My friend has an apartment in a very prestigious development that he held off renting out until he got a VERY good price and too on the basis of ONE cheque and the contract is non-renewable after two years.
There are many people who CAN afford to keep their properties empty while they wait for the right price. These are people who have bought quite a few properties and dont necessarily need immediate injections of cash.
Wake up, my dear.... Dubai has many rich people. And as a previous AB article published - the Gulf rich are getting richer!
Having said that - I am not against the rent cap. Something's better than nothing and at least a few fish may get trapped in the net.
Posted by Frank, Dubai, United Arab Emirates on 25 September 2008 at 17:53 UAE time
I disagree that landlords would leave their property empty.
The chances are they have a mortgage on it that needs to be paid - and could not afford not to rent it.
Those who do not have a mortgage would still want to rent it - otherwise they are suffering a massive opportunity cost loss.
Anyone who can afford not to rent a property probably does not care about whether the rent increases 1% or 20%. There are many of those in the Dubai market - and a rent cap or no rent cap will not make a blind bit of difference.
Keep the rent cap - make it more stringent - until the economy cools off. Then get rid of it.
Posted by The Consultant, Dubai, UAE on 25 September 2008 at 15:27 UAE time
A rent cap based on a percentage of the previous year's rent is a terrible idea - it penalises "good" landlords who have stuck to modest increases in the past (and are now renting at well below the market value, as Lee's example neatly illustrates) whilst unscrupulous landlords will simply find a way around it, usually by evicting the tenants.
Whilst the tenant may get a temporary respite from the true market rates, they then find themselves unable to move and are either stuck in accommodation that is too small/old/far away for their needs, or resort to illegal sub-letting.
A rent cap based on a maximum lease per square foot for each area of the city, with some adjustment permitted for age and facilities of the specific property, would be much better. However I doubt the Government has the appetite for this task, so perhaps they could consier acquiring entire buildings and leasing them at affordable rates to hard-up families?
Posted by David, Dubai, United Arab Emirates on 25 September 2008 at 13:13 UAE time
Rents are too high. The government is absolutely right to do something about it. It has to - otherwise no one could afford to live here.
Frankly we need the economy to cool off. Once that has happened, I am sure the government will ease artificial caps.
Reducing the amount of rental income people can expect will also ease speculation in property buying. Yes, there will be huge demand id rents rise at 20% a year - leading to out of control property prices - as has happened.
Clamping down on the value of rents, will take that sting out of the market.
Personally I would argue for a two-year rent freeze. It's not as if rents are low!
Posted by John, Dubai, UAE on 25 September 2008 at 12:05 UAE time
This will certainly help in fighting the inflation, better than depeg to the dollar
Posted by Rainigade, Dubai, UAE on 25 September 2008 at 10:00 UAE time
Yes, the landlords of Abu Dhabi have for sure learned their lessons from Dubai. Who doesn't want to earn more money after all?
I have friends who own properties and even though I try to convince them not to be so unethical - they just respond by saying "everyone else is doing it, so why shouldn't I".
Its a horrible, vicious, circle.. and no one wants to break it. My friends actually have a "non-renewable, two-year contracts", in order to ensure that after two years they can charge the rents of that time and circumvent the rent cap in Dubai.
Both RERA and the rent cap are a joke!
Posted by Paul, Dubai, UAE on 24 September 2008 at 12:14 UAE time
It is true that you cannot suppress inflation by price fixing. All this does, as Lee points out, is to encourage people to keep property empty and profit through resale value rising and higher rents later. It is counter production. Anyone with any basic economic knowledge will see this.
Take Zimbabwe - they freeze the price of bread. But the raw materials still rise, so bakers just stop making bread. Instead they try to skirt the law by making foods that are not price controlled.
The rent cap has failed because it encourages properties to be kept empty. It is also trivial for landlords to circumvent it, writing exemptions into contracts and coming up with bogus reasons for evictions. The rent committee is just a fig leaf covering this problem. It has not kept average rents from soaring.
The only solution is to control money supply. If you continue to allow massive increases in money supply (e.g. 40% per year) while the number of apartments might increase by 10%, then it is obvious that prices will rocket.
It may however be too late for the UAE authorities to take action. Foreign money is now exiting the UAE at an alarming pace and the stock markets are heavily discounting developers and banks. The credit crisis is arriving in Dubai, and now the failure over the past few years to address the problem will lead inevitably to a sudden and severe crash.
Posted by Lee, Dubai, UAE on 24 September 2008 at 10:31 UAE time
What a bad idea! Why would owners rent their flats and villas upon completion if they will be locked into only a 3% increase? Owners will let them stay empty for 6, 12, 18 months or longer until the rental rates reach a level where owners want to rent their units or they decide to sell. Look at what has happened at Al Reem at Arabian Ranches. Back in 2005 when phase one started leasing a 3M unit rented for 75-85K per year. After 2 years the rental rates had doubled to around was 160K per year. Now a 3M is I believe around 230-260K. Think about the owner who is stuck with a tenant for the past 3+ years. They are probably paying less than 100K per year. Owners in Abu Dhabi will look at what is happening (and happened) in Dubai and learn how to play the game....if owners in Abu Dhabi become locked in to low annual increases then owners may refuse to put their villas & flats on the market for rent. This is bad for everyone.