Abu Dhabi introduced its rent cap in 2006, when the emirate was undergoing ambitious expansion fuelled by an unprecedented development programme.
The sudden influx of expatriate workers and their families vastly outstripped the available housing supply, causing rents to increase by double or more.
Following this, the distortion created by the rent cap was highlighted by neighbours finding themselves paying different amounts for similar properties based purely on when they had arrived in Abu Dhabi.
In November 2013 the Abu Dhabi Executive Council decided to remove the cap altogether, stating that the housing market had caught up with supply to the point that normal market forces would be enough to keep prices in check. It was a brave move and obviously welcomed by landlords although tenants were fearful for what the future would hold.
For a while the landlords of Abu Dhabi decided to follow a sensible approach and, although they would have been quite within their rights to charge whatever increases they liked at renewals of tenancies, they did remain reasonable, with most increases of between 5 and 10 per cent.
As time has moved on, we hear stories of landlords of some long-term Abu Dhabi tenants demanding yearly rent increases of as much as 50 per cent .
The main reason for this is the lack of available housing in the capital. In fact, only 750 new homes were delivered in the first quarter of 2015 and a total of 5,800 units are expected to be completed this year – which represents the lowest level of new residential supply for five years. So now there is much talk amongst tenants and home seekers alike that there is a need to reinstate a cap of some sorts. This is of paramount importance if the citym is to remain competitive.
Dubai has been following a rental cap system of its own since 2011 but a month after Abu Dhabi removed the 5 per cent limit, Dubai followed suit by adjusting its own system by issuing decree 43 of 2013. This law concerned the maximum a landlord could increase rents upon the renewal of the tenancy agreement. These increases ranged from 5 per cent to a maximum of 20 per cent in any given year. This decree was aimed at redressing the balance of power between landlords and tenants that in the past was weighted more in favour of tenants.
As rents have steadily increased in Dubai, too, mainly due to the hype of winning the rights to host the expo, existing tenants have been protected from extremely high renewal rental rates.
Recently there was talk of Dubai’s Rera rent index calculator not being in touch with reality and that a more thought out system should take its place. I say be careful what you wish for as Dubai tenants, in the main, should be grateful that the calculator algorithm is based on average rents and not market rates.
Dubai’s tenants have the luxury of being protected due to this and it acts as a shield from unscrupulous landlords wishing to raise rents to lofty levels. Many say the calculator is not sophisticated enough and does not take into consideration certain factors such as property size, views, condition, facilities, and age among other things.
There are always winners and losers but in the main the calculator is a major benefit and still a welcome relief to the many hundreds of thousands of tenants renting in Dubai
Currently, the Dubai and Abu Dhabi rent caps, or lack thereof, make for interesting reading. On the one hand we have Dubai, with landlords who can sometimes use bully tactics to attempt to raise the rent beyond allowed levels and sometimes get away with it as tenants can feel it is better to pay up than taking the landlord to court via the rental committee. Many people, however, do stand up for their rights and often emerge the victors in the struggle through the legal system.
On the other hand we have Abu Dhabi landlords in total control of their renewal rental figures. Provided landlords give two months notice prior to the date of renewal, they have carte blanche to charge what they like.
In Dubai, the landlord has to give 90 days’ notice and then it has to be within the parameters of the Rera rental calculator.
At present, where you live or how realistic your landlord will determine whether you feel at peace at the time of your renewal.
Mario Volpi has worked in the real estate industry in Dubai and in London for the past 30 years. Send any questions to mariovolpi@aol.com
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