Tenants and landlords watch movements in the flat rate after law change
Khaled el Najmi and his family moved into their apartment on Abu Dhabi's Corniche 10 years ago, before rents in the capital started to climb sharply. The Canadian civil engineer was satisfied with his rent of Dh110,000 (US$29,944) for the three-bedroom flat, but is now convinced he has a bargain.
A decade later, Mr el Najmi pays just Dh133,000, about a third of its current value, and his family enjoys a stunning panoramic view of the city. "We were very lucky with our landlord," he says. "The rent stayed about the same until 2006, when the new tenancy law was issued. Then it increased every year by 5 to 7 per cent. Before the first tenancy law in 2006, landlords could actually increase the rent by as much as they wanted."
Even when the law was introduced, some landlords cashed in on the shortage of residential property in the capital by demanding big rises in rent before a 5 per cent annual cap was introduced in 2007. Now, in another move to keep rents stable, the Abu Dhabi Government has announced plans to protect tenants from volatile rents. Last month, Sheikh Khalifa, President of the UAE and Ruler of Abu Dhabi, signed a law that should clarify the legal rights of landlords and tenants.
One of the key features of the new regulations, known as Law Number 4, will be a clause requiring landlords to register rental agreements showing how much tenants pay. This should allow authorities to clamp down on rogue landlords breaking the price cap. "Law Number 4 is talking about 'registering leases'," says David Nunn, a partner at the law firm Simmons and Simmons. "This is very important. If the municipality starts registering the contracts, this will introduce much more transparency and landlords will find it difficult to increase a rent in excess of the cap."
The registration system should help new tenants, but people such as Mr el Najmi could face hefty increases or be forced to move to cheaper flats because of simultaneous changes to the tenancy laws, one property expert says. Under the existing regulations, tenants have the right to stay in flats for up to five years with their rents capped every year. This clause has been taken out of the new regulations in a move to get rid of the two-tier rental market now established in the capital.
"A lot of tenants who were paying historic rents now will be faced with rental increases," says Paul Maisfield, the general manager of Asteco in Abu Dhabi, one of the largest property managers in the country. "Landlords might wish to bring the buildings in line with where the market is." Property consultants also have concerns about the monitoring system the authorities will use to prevent excessive rent rises.
"In order for landlords to respect the rent cap, we would need a system to get them consistently to register contracts," says Jesse Downs, a consultant at Landmark Properties. "But this would require quite a bit of organisation to really effectively monitor it. The measures to be put in place would have to be extensive and be effective at the same time as the new law." "Majad", 30, an Emirati manager for the Abu Dhabi Company for Onshore Oil Operations, will be keeping a close eye on the proposed regulations.
He moved into his three-bedroom apartment on the Corniche last year, but he inherited a rent of Dh107,000 a year because his company signed a 10-year lease with the landlord. That was before soaring demand for homes in the capital saw rents double in the space of three years "I was living in Baniyas and moved here in this flat that my company is renting it for its employees because it is just next to the office," Majad said.
"My company signed a one-year lease, renewable, and each time an employee moves out he is replaced by another employee but under the same lease. I know my rent here is quite low compared to the market." Others have not been so lucky. Along the corridor from Majad, Stephane Cormier, a French national, is paying three times as much rent for the same apartment after moving in June. "I am paying Dh330,000 for the same kind of three-bedroom because I moved in with my family in June last year," Mr Cormier says. "At that time, prices had already gone crazy."
Demand could also play a role in keeping prices down, Mr Maisfield says. The current market rent for a two-bedroom home in Abu Dhabi is about Dh150,000 a year, down from Dh250,000 at the peak in 2008. Mr Maisfield predicts that rents will fall another 15 per cent this year as about 11,800 new flats come on stream. "The good thing with the new law is that there will be more availability in the market," he says. "The other characteristic in the Abu Dhabi market is that while it has always been controlled by a relatively small group of national landlords, now for the first time we also have expatriate landlords."
Mr Maisfield says landlords will be more willing to reduce rents if they cannot find new tenants quickly. "They will drop the price because they have mortgage repayments to cover and service charge expenses," he says. "Emirati landlords seem to have more flexibility to leave apartments vacant for six months until they find a tenant willing to pay a higher rent." As for Mr el Najmi, he is just hoping his rent stays steady.
"I am happy with this flat and I hope I will be able to stay there for as long as I am in Abu Dhabi," he said. "I don't think that our landlord will take advantage of the new law to evict us." email@example.com
Updated: March 22, 2010 04:00 AM