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Tue 11 Apr 2017 04:19 PM

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Rent cap to regulate Abu Dhabi market

Abu Dhabi made in December to re-introduce the cap, limiting rent increases to 5 per cent per year.

Rent cap to regulate Abu Dhabi market

Abu Dhabi recent reintroduction of the city’s rent cap is part of a wider push by the emirate’s authorities to better regulate the property market and to protect investors and tenants alike, although a rent cap alone will do little to tackle the shortage of affordable housing in the UAE capital, officials say.

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

Values are again in decline after Abu Dhabi’s government reined in spending in response to an oil price slump that began in mid-2014. As the chief employer, either directly via state institutions or indirectly through state-controlled companies, the emirate’s government yields a massive influence on the capital’s property sector.

Abu Dhabi rents for both apartments and villas fell in most, if not all, neighbourhoods last year, according to data from various organisations.

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

Villa rents at Al Raha Golf Gardens aside also plunged 14 per cent over the same period, but other villa communities were more stable, with Al Raha Gardens down 8.7 per cent, Hydra Gardens dropping 4.6 per cent and Khalifa City 4.1 per cent.

Saadiyat Island, Al Reef and Al Salam Street rose 8.9 per cent, 4.8 per cent and 1.6 per cent respectively. In Abu Dhabi only 3,100 newly completed units were added to the city’s housing stock last year, bringing the total to 248,000, Jones Lang LaSalle, global real estate advisory estimates.

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 per cent from 2014 to 2018. Dubai’s stock, in contrast, is slated to expand 17.1 per cent over the same period.

Rent caps can also have some negative consequences, with landlords unable to charge the market rate more likely to neglect their properties because maintenance and upgrades will not bring improved returns.

The rent cap’s return follows Abu Dhabi introduction of a series of new rules governing the property sector.

Most notably, developers must now hold off-plan buyers’ payments in escrow accounts and all major industry players including brokers and surveyors require licenses from the government, according to a note from international law firm White & Case. Apartments can also be sold as freehold – previously such units were usually subject to 99-year leases. More reforms are required, however. 

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