Rise in number of residents fuel higher rents
In November, Abu Dhabi announced that it would remove the 5 per cent rent cap. Dubai a month later adjusted its rental rate rise system.
Along with an increasing number of new residents, these changes have fuelled rent rises across the country, as underpriced properties are brought into line with market averages.
Dubizzle reported price increases of 47 per cent in some areas of Abu Dhabi, while average rates in Dubai climbed some 35 to 40 per cent, according to Dubai’s Land Department. Data from property agents Cluttons show price increases of 43 per cent for mid-range apartments in Dubai throughout last year.
The rent cap benefited residents who had negotiated their contracts for considerable lengths of time previously, and who, therefore, effectively exited the property market, save for their annual payment uprating. Newer entrants have been paying higher prices as a result of the decreased availability that resulted.
“It has shuffled the market,” said Thomas Williams, residential leasing consultant at Better Homes. “A lot of people moved [into expensive apartments] and ... were lucky enough ... to get a lower rate,” he said. “These people are having to move, so their properties are becoming available again.”
In the long run, prices will fluctuate as tenants on favourable contracts switch to more affordable accommodation, increasing availability in some areas. Higher rents should also signal to landlords to increase the supply of buy-to-let properties, which should also ease rental inflation.
Developers will look again at sites further from Abu Dhabi’s centre, as consumers gravitate towards cheaper housing on the periphery.
More tenants are choosing to buy instead of renting, Mr Williams said.
“There’s been a switch in behaviour,” he said. “A lot of people who arrive in the UAE plan to be here for two or three years, and six years later they have no idea when they’re leaving.”
The removal of the rent cap is also leading tenants to underspend this year, as they worry about future rent increases.
“Tenants worry about prices going up. They may be unable to afford it [the same flat] next year... so they are undercutting their own budgets and spending less than they can afford,” he said.
And rising prices are a clear signal for developers to increase supply as fast as they can.
Published: January 15, 2014 04:00 AM