Rent cap is not the answer for Dubai, industry analysts say

Dubai: Rent caps are not the long-term answer to Dubai's rental rate situation, industry analysts say.

The dynamics within Dubai's previously booming property industry have changed hugely over the last quarter and many are now saying the need for a rent cap this year is less important.

"The rent cap in Dubai, as a tool for moderating escalation, has been very effective. But is the rent cap a long-term solution for Dubai? Probably not," Blair Hagkull, managing director Middle East and North Africa, Jones Lang LaSalle, told Gulf News.

Around 32,000 housing units are set to hit the market this year after 27,000 units came on to the market in 2008.

And with many people considering leaving Dubai due to job losses triggered by the global financial crisis, a softening in prices looks inevitable. "With significant supply coming on the market over the next two years, this might naturally moderate prices, achieving the objective of equilibrium in the market," Hagkull added.

Others say that there will be a small delay in the handover of these units due to delays in construction and payment, triggered by the financial situation. "The number of units will definitely be postponed by at least one quarter," Abid Junaid, executive director of ETA Star Property Developers, said.

Junaid also said a rent cap isn't necessary as it is usually used in times of inflation. "I don't think a rent cap is required. The cap was only to prevent landlords from raising rents exorbitantly. I think the landlords themselves might voluntarily stop increasing rates," Junaid said.

This may well be true as already the rental market offers more flexible payment terms than it did last year. It is now possible to pay annual rent in some areas of Dubai over 12 cheques, which is more in line with global practice and signals a successful economy, said Hagkull.

While some have predicted a slight dip in rents in the first quarter, these rates will increase later in the year as tough market conditions make it harder to buy property instead.

Marwan Bin Galita, chief executive of Dubai's Real Estate Regulatory Authority (Rera) told Gulf News on Monday that he didn't think a rent cap was necessary in Dubai as 2009 was already going to be a tough enough year.