The removal of a cap on rental increases in Abu Dhabi is unlikely to trigger inflation in the housing market as new supply comes online, said a top official.
Rashed Al Zaabi, the acting director planning and statistics at the Abu Dhabi’s Department of Economic Development said that market forces would ensure that there would be no major increase in rents.
“There will be competition in the market between older neighbourhoods and residences in newer developments,” he said. “If prices are increased in one location, there will be opportunities to move elsewhere.”
Abu Dhabi’s Executive Council announced last week that it had abolished the annual extension of the cap on rent increases of 5 per cent. The new rules are effective from November 10.
The rental cap was formalised in 2006 at 7 per cent, and subsequently revised down to 5 per cent in 2010.
Mr Al Zaabi said that the council had conducted studies on what impact the lifting of the cap would have on the rental market.
“The council wouldn’t just issue it like that without studying what the impact would be,” he said. “The market should be stable, I don’t think prices will increase.”
However, there is widespread concern that landlords will use the removal of the cap as a pretext to significantly increase rents.
Property brokers have reported that the capital’s prime neighbourhoods are beginning to experience an increase in rents after years of oversupply in the market.
The rises have been caused in part by an Abu Dhabi Government decree in September 2012 requiring government employees to live in the emirate or risk losing their housing allowance.
Average rents in Abu Dhabi increased by 1 per cent in the third quarter of the year, compared to the previous quarter. That slowed significantly from a 4.5 per cent increase in the second quarter, according to Cluttons.
Rental increases in the capital, while lower than those in Dubai, are outpacing the growth of household incomes, said Cluttons, suggesting that more subdued growth lies ahead.
Inflation in the UAE stood at 1.26 per cent at the end of September, according to the National Bureau of Statistics, with inflation in Abu Dhabi standing at 1.1 per cent, according to Statistics Centre Abu Dhabi.
However, a survey of HR professionals released by Hay Group in September found that perceptions of inflation were closer to 5 per cent, fuelled by an increase in rents, healthcare costs and school tuition fees.
Mr Al Zaabi said that the dropping of the rental increase cap would not affect inflation, given the increasing size of the market.
Last week the first 60 apartments of Aldar’s long-awaited Gate Towers residential development on Reem Island were released, with a further 1,000 apartments due to come on to the market in the coming weeks.
A number of other developments have slowly begun to come on to the market in the past months, including 375 apartments in Tala Tower on Reem Island.