Sharp rent increases in the UAE can cause an imbalance in local economy

Sharp rent increases in the UAE can cause an imbalance in local economyImage Credit: Supplied

Only one-half of the UAE's efforts to cool down the property market from overreaching itself has worked up to now — halting the sudden and sharp spike in asking prices for homes in freehold clusters.

The other factor that is creating an imbalance in the local economy — the rise in rentals — still has not been brought under control.

By the looks of it, bringing stability in the rental growth rates could take more time.

''Rental values will only cool off when supply needs are being met, particularly in the mid-income category where rents have shot up the highest (34 per cent on a year-on-year basis versus 23 per cent on a city-wide basis),'' said Sameer Lakhani, managing director at Global Capital Partners, an investment firm.

''The supply that can accommodate the current demand dynamic is expected to materialise only by 2016-17 — unless the supply is altered by developers. There is evidence this is starting to happen; but demand for housing is firmly based on strong job creation. In the interim, the only solution lies with regulatory authorities to closely monitor rental practices and fine errant landlords.''

There is evidence of that starting to happen. Tenants who have been hit with steep rent demands are approaching the authorities to arbitrate on their behalf using the Real Estate Regulatory Agency (Rera) Dubai Rental Index. Based on feedback, verdicts are being delivered hewing to what the Index shows benchmark rentals for each area.

''The rules are pretty clear — no landlord in Dubai can impose beyond a 25 per cent on an existing tenant on an annual basis and there are other restrictions on the extent of the increase as well,'' said Robin Teh, country manager for the UAE at Chesterton International. ''Dubai's tenants have it better given that the regulator has a Rental Index to go by to base decisions, unlike in Abu Dhabi.''

Meanwhile, market sources say that some big-ticket investors — those who prefer completed buildings or entire floors to individual units — have reduced their exposures, which would help cool down price growth.

''Between February to May there were a few notable exits by these investors, who preferred profit-taking at this stage than hold on,'' said Samir Munshi, who heads Orion Holdings. ''It could be that they felt the prices were reaching levels that could not be sustained and it made sense to exit. But these investors are still interested in Dubai realty and they are sitting on cash piles waiting for the next opportune time to make a re-entry.''

According to Munshi, some private funds from Pakistan could flow into Dubai's realty in higher volumes, if investors see cause for concern from the latest terror attacks. ''The safe haven status for Dubai is still the catalyst driving funds from trouble spots — that pipeline is never going to get dry.''

Source: Manoj Nair, Associate Editor,


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