Tenants will face a rapid surge in rental rates and the cost of living should Dubai follow the recent move of the Abu Dhabi Government to scrap the 5 per cent ceiling on annual rent increases. The decision of the Abu Dhabi Executive Council to remove the rent cap has left tenants in the capital worried about exorbitant rental hikes, with many now considering relocating to other emirates.
Mat Green, Head of Research and Consultancy — UAE at CBRE Middle East, says the new rule allows landlords in the capital to increase rents, but given that supply levels are increasing rapidly, he doesn’t expect a significant short-term impact. Moreover, he says there is no indication Dubai will follow suit, as rents in the emirate are already rising rapidly, with a 23 per cent average growth over the past year.
With Dubai in the midst of a major growth phase, the rent cap is an important piece of regulation that limits volatility and controls rental movement, adds Green.
“Without it, we could expect to see rapidly rising rates, raising the overall cost of living, and ultimately making the emirate a less competitive environment,” he says. “While supply-and-demand fundamentals do apply in the local market, sentiment appears to be the key driver. With the World Expo 2020 awarded to Dubai, there is a new wave of confidence sweeping the market, and for tenants that means more bullish landlords.”
Tenants paying rents that are below the market rate would feel a greater impact if rent caps are removed, says Michael Lunjevich, Partner at Hadef and Partners.
Robin Teh, Country Manager — UAE at Chesterton Middle East and North Africa, adds that the highest rent increases would be seen in premium areas such as Downtown Dubai, Dubai International Financial Centre, Jumeirah Beach Residence and Palm Jumeirah.
“There will also be a 30-50 per cent rent increase in old leases. Tenants would find it very difficult to cope with such rental increases as it would severely affect their budget,” says Teh.
