Would a new rent cap ease money fears?

Three per cent levy on rents raises concerns that the cost of living will keep going up

Cost of living increases is a major concern for some expatriate workers. Mona Al Marzooqi / The National
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With the cost of living steadily creeping up, including the announcement this week that a 3 per cent municipality contract fee will be levied on all expatriates renting homes in Abu Dhabi, there is justification to allay the sense of apprehension some tenants are feeling about what other extra expenses might be coming.

While the rationale for the levy is readily understood – the extended period of low oil prices has caused the emirate to run deficit budgets, prompting a decision to seek alternative sources of revenue to bring income closer to breaking even with expenditure – there is undoubtedly also an emotional element in people’s reactions. The reality is most people will simply absorb this new expense but with a sense of discomfort that other price hikes might be on the way. There is a case to be made for them to have some kind of assurance that other living expenses will be held in check or subject to only modest rises.

The Government is facing a delicate balancing act in imposing the levy, which is to increase revenue but at a level that does not place the cost of living in Abu Dhabi beyond the budgets of the expatriate workforce. Nobody’s interests are served if large numbers of expatriates decide to take their skills somewhere else with more modest living expenses.

As everyone knows, accommodation is a major expense in Abu Dhabi. Tenants in the capital used to be protected from soaring rents by a rent cap introduced in 2006, when the economy was booming but accommodation was in short supply. The cap limited rent increases to 5 per cent each year but it was removed in 2013 when the supply caught up with demand sufficiently that market forces could establish the right price.

With the 3 per cent levy exacerbating what is already a major expenditure, there is a case to be made for a balance to be set between tenants, landlords and the Government to share the burden.

One would hope this could be achieved informally rather than through the mandating of a new rent cap, but many people who will absorb the cost of the new levy will be able to rest easier if they think major elements of their cost of living will not continue to rise disproportionately.