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Tue 4 Mar 2008 03:30 AM

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Qatar freezes rents in inflation battle

No increases permitted for two years on any rental contracts signed after 2005, cabinet decrees.

Qatar freezes rents in inflation battle
RENT FREEZE: Qatar is constrained in its fight against inflation by its currency’s peg to the US dollar. (Getty Images)

Qatar's cabinet has agreed to freeze all rents signed since the start of 2005 for the next two years, newspapers, including the Gulf Times, reported on Monday as the Gulf Arab country grapples with near-record inflation.

Like most of its neighbours the world's top oil-exporting region, Qatar is constrained in its fight against inflation by its riyal currency's peg to the US dollar, which forces it to shadow US monetary policy.

As the Federal Reserve cuts interest rates to ward off recession, Gulf economies are surging on a five-fold rise in oil prices since 2002, fuelling inflation.

"No increase in rents shall be permissible" for two years for rental contracts signed after January 1, 2005, including new contracts, the Gulf Times reported, citing a cabinet decision on Sunday.

A 27.7% jump in rents spurred inflation in the world's largest exporter of liquefied natural gas of 13.74% in the fourth quarter, just off a record.

Rent caps have helped reduce inflation in other Gulf Arab states but would not solve the problem as long as supply falls short of demand, said Monica Malik, regional economist at EFG-Hermes investment bank.

"This will have some impact on dampening rental price inflation," she said. "But with such a supply-demand mismatch, the main thing that will solve the problem is housing supply, which takes time."

In the UAE, Dubai and Abu Dhabi both capped rent increases at 5% this year, down from 7% last year, to help contain inflation, which hit a 19-year peak of 9.3% in 2006.

But Standard Chartered Bank said in August the cap was not protecting new tenants, who faced rent increases of 20 to 25%. It raised its inflation forecast as a result.

In Qatar, landlords could raise rents between 5% and 20% on rental contracts signed before 2005, depending on the rent price, the Gulf Times said.

Qatar's previous rent cap of 10% per year expired last month, when the Gulf state passed a new rent law.

"New contracts will likely continue to face much higher rental inflation than existing contracts," Malik said.

Gulf Arab inflation would fall "significantly" were oil producers to drop their dollar pegs, former Federal Reserve Chairman Alan Greenspan said last week.

Qatar, contending with the region's highest inflation, is studying revaluing its riyal among options to combat inflation, its Prime Minister Sheikh Hamad bin Jassim bin Jabr Al-Thani told Reuters last month.

The Qatar riyal hit a near three-month peak last week after the remarks, which coincided with the US dollar hitting new record lows against the euro and a basket of major currencies, raising expectations of currency reform in the Gulf. (Reuters)

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