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Sun 6 Jan 2008 04:34 PM

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Sought-after properties to remain out of reach

Property index will keep rents in prestigious communities at high levels, analyst says.

Rents in Dubai's prestigious communities are likely to remain sky high with the introduction of an index by the Real Estate Regulatory Authority (RERA) to set appropriate rents for properties across the city, an analyst said on Sunday.

UAE daily Emirates Business 24/7 reported on Sunday the index would come into effect on January 15, setting minimum and maximum rents that landlords can charge for properties in particular developments.

Dubai residents suffering under record inflation had been hoping the 5% rent cap announced last week and the huge supply of houses expected to come onto the market this year would cause rents to drop, but EFG-Hermes economist Sana Kapadia said the index would likely keep rents up in sought-after locations.

“There is a strong possibility that rents will remain at high levels for prestigious, highly coveted locations,” Kapadia told ArabianBusiness.com.

The cost of accommodation in areas of Dubai such as the marina and Jumeriah are likely to remain high "to reflect the attractiveness and hence underlying demand", the economist said.

Kapadia said the introduction of the index would also see rents in less prestigious locations be reduced.

"I expect that in less prestigious areas where rents have currently been exaggerated due to demand-supply dynamics, rents are likely to come down," Kapadia said.

Dubai does not currently have a property index, which means that tenants pay often very different rates for the same types of properties as rents for new arrivals have risen rapidly in recent years.

Under the scheme, landlords will be obliged to set rents within the stated limits or report to a rental dispute committee, according to Emirates Business.

EFG-Hermes said earlier this week that the rental cap would have a limited impact on curbing inflation, with hit a 19-year high of 9.3% in 2006, because a shortage of housing was the main driver behind rental increases.

“The biggest relief to the rental market will come from a greater onslaught of supply,” Kapadia said.

In an earlier report, EFG-Hermes predicted that residential property prices would begin to fall in 2009, a year later than initially expected because of a delay in the delivery of construction projects.

Dubai's population, which is more than 85% comprised of foreigners, is growing at an average of 7.9% a year and may rise to 1.9 million by 2010 from 1.4 million now, according to EFG-Hermes.