Dubai: Since November, when the rental cap was done away with, Abu Dhabi’s tenants have been forced to dig deeper into their resources to offset the subsequent hikes. The first three months have seen rental demands go up across all of Abu Dhabi’s prime residential clusters and is likely to continue right through to the summer.
But will the emirate’s proposed rental index offer a breather from the current hiking spree? No firm dates have been set as to when Abu Dhabi might formally launch the index, though industry sources — and for sure, the city’s residents — expect something to come through this year.
Steve Morgan, Middle East head at the property services firm Cluttons, believes that tenants will eventually benefit from having the index around. “It is a step in the right direction in helping Abu Dhabi align itself with more mature residential markets — Inevitably, tenants will benefit the most from this as appropriate controls are put into place to better regulate rents. The proposed index, if activated, will no doubt go some way to improving the transparency and aiding in the creation of a benchmark for landlords and tenants to work with. Clearly further regulation and clarity is still required on this.”
So, what is being witnessed now is a sustained effort by landlords in Abu Dhabi to raise rents ahead of the index’s launch, and thus ensure their asking rates are on par with at least the base rates for that particular neighbourhood. What landlords do not want at any cost is to have leased properties that bring in rents well below the market average. The need to do so is most telling on owners of older stock and the more established locations in the city. (It is believed that the index will create 10-12 levels depending on how much each area commands as base rent.)
Market feedback
“The removal of the 5 per cent rent cap rule during November 2013 meant that landlords were able to adjust rents to perceived market levels rapidly,” said Morgan. “The market is undoubtedly meandering through a settling period as landlords and tenants adjust to the change in the law.”
Dubai too has gone through this pathway, and that too recently. A recent Decree set percentage-base ranges within which landlords could raise rents, which would be tied to a rental barometer monitored and updated by the Dubai Land Department. With the announcement, the existing rental cap became void.
Market feedback suggests that there have been many instances of breaches to the rental barometer, with landlords sticking to their increased rent demands over and above the index average and asking their tenants to vacate if they cannot comply.
“The perception among landlords is that they can only try to extract maximum advantage now rather than when the Dubai market sees more completed property deliveries in the next year or two,” said a property agent. “Also, the rental barometer is still a work in progress — once it becomes more sophisticated, landlords will have less room to seek sharp hikes.”
For tenants in Dubai and Abu Dhabi hard hit by rent gains, they will just need to keep believing that patience will bring its own rewards.
