Rethinking rents in the capital

Abu Dhabi could introduce something similar to Dubai's rental system that is fair to both tenants and landlords

Abu Dhabi can learn from Dubai's rental cap experience. Silvia Razgova / The National

Rents in Abu Dhabi continue to rise though not at the runaway rate of a year ago. However, the situation demands action to protect tenants, while ensuring that it is fair to landlords too. These are not mutually exclusive.

Some have been asking for a return to the five per cent rent cap, as The National reported yesterday. The rent cap system might help some of the more harried, such as the tenant who lamented an 18 per cent increase, but it is likely to be seen as unfair by property owners. It stands to reason that landlords should have some say in the price at which they let their property and they should be able to raise it in line with the market average.

Those words – market average – are absolutely key. A judicious rise in rent acknowledges changes in demand and supply. Perhaps the best solution for the capital would be a system similar to that run by Dubai’s Real Estate Regulatory Agency.

Dubai’s rent cap law, introduced in 2013, allows for an increase of up to 20 per cent for tenancy contract renewals. However, an increase can only happen if a property is earning at least 11 per cent below the average market rental rate for a particular neighbourhood. The average is laid out in the rental index produced and regularly updated by Rera. It also regulates the extent of any rise. If a property is being let for 40 per cent less than the market rate, then a 20 per cent increase in the rent is allowable at the next renewal. In between the 0 and 20 per cent rate, a sliding scale of increases are permissible, depending on where the rent falls within the price spectrum.

The system is undoubtedly more bureaucratic than a blanket 5 per cent rent cap or its removal, but it is fairer to both tenants and landlords. Crucially, it lays out clearly and upfront what would happen if the market rental value changes. Tenants could plan ahead for a rent rise and landlords would be unable to ask for too much. Such a system would help smooth out the volatility in the property market. Abu Dhabi might do worse than benefit from Dubai’s solution to a shared problem.