Abu Dhabi tenants at agents' mercy

Abu Dhabi: The shortage of residential units in the capital has presented a golden opportunity for real estate agents to exploit tenants, according to experts.

Real estate agents have been taking advantage of tenants' weak position in a seller's market. For example, they do not take any commission from landlords, and burden the tenant with all sorts of costs.

"It is a seller's market. The case would have been different if we were in a buyer's market, where suppliers need to compete on quality, and pay realtors to fetch for tenants," said David Nunn, partner at Simmons and Simmons.

The real estate market in Abu Dhabi seems to suffer distortion as a result of demand far outpacing supply. Reports forecast that the supply in the pipeline will not sove the problem since it is mostly focusing on high-end properties, leaving the majority of residents in the lurch by ignoring middle and lower middle class segments of the market.

"The current occupancy levels in Abu Dhabi are extremely high, with rents rising by an annual average of 25 per cent since 2004," according to a report by Colliers International and Shuaa Capital.

Only 1,100 high-end units will hit the market in 2007, while a staggering 22,000 units will be in demand, mostly from the middle class, the report revealed.

Landlords in Abu Dhabi have no obligation to provide better quality. In the meantime, realtors are bypassing regulations that prohibit renting more than one unit, and hence comprise the majority of share-housing landlords. "We will always find our ways around regulations. For example, we use others' names in return of accommodation or a commission. At the end of the day our business needs to survive," M. A., a capital-based realtor told Gulf News on condition of anonymity.

Desperation

"With under-supply, people are desperate to get units, and the market does not pressure landlords. Hence it is the market that allows realtors to exploit the gaps therein.

"However, regulations might help because agents should be registered, legally obliged, even to place a bank guarantee, and have a place of business," Nunn added.

He felt subscription to some professional body, with codes of ethics, may streamline activities. With the need for formalising, recognising, and controlling realtors' activities, some experts agree that the seven per cent rent cap introduced in the market will not help. "The problem can only be solved by providing supply to the right segments. Rent caps will only distort the market to the extent that no one would be willing to invest in real estate anymore, since inflation rates outpace by far this seven per cent [cap]," Nunn said.

However, banks and financing companies seem to be sure of the growing need for high-end accommodation as newcomers keep flowing into the capital.

"Financing high-end developments is a safe investment as needs in Abu Dhabi are ever-growing," said Mohammad Nasser Abdeen, chief executive officer of Union National Bank.