As landlords and tenants await the announcement on rent caps, the latter can take heart from the prospect of greater bargaining power as demand eases.
Hopes of respite in housing costs
Rent caps in the capital seem likely to remain at five per cent or move even lower, and the global economic crisis may provide further relief for tenants. With no official announcement from the Abu Dhabi Executive Council or Dubai's Real Estate Regulatory Agency on the cities' 2009 caps, the property industry is working on the basis that last year's five per cent still applies. And it is understood from Abu Dhabi Government sources that the capital's rent cap will continue at that level in the short term or even be lowered in the longer term.
A decrease in demand for property, driven by the economic slump, is also giving tenants significant leverage with rental prices. The drop comes as even some of the major companies start laying off staff. "The financial crisis is hitting the market here," said Mohamed Guidoum, chief executive of Remax Absolute Realty in Abu Dhabi. "We know there's an impact but the extent of that we don't know yet. Everybody is concerned about this."
There have been heavy rent reductions at locations such as International City in Dubai, according to Naria Rajpurohit, the sales manager for Junaid Real Estate. Ms Rajpurohit said studio flats that would have been on the market for Dh65,000 (US$17,696) a year were now going for Dh50,000. "The rents have come down slightly," she said. Lee Corby, from Group Seven Properties in Dubai, said prices in the city were coming down and tenants had to make sure they got the best deal. "When it comes to renewing, people are looking round and starting to negotiate with landlords," Mr Corby said.
He said the rent cap situation was up in the air but agents took the view the five per cent cap still applied. "It's more of an assumption. There's been no announcement. Until we get an announcement, we cannot do anything." Commercial properties have been advertised on the basis that tenants can pay with monthly cheques instead of the annual or quarterly payments that have become customary. Even before the global economic downturn hit the UAE economy, there were signs that Dubai's rental market was softening, thanks to an increase in housing.
The property services firm Asteco reported that in the 12 months to June, there was a 22 per cent increase in Dubai rents, but most of that was accounted for by increases in the second half of 2007. In Abu Dhabi, because of a housing shortage, the situation for tenants remained acute, with annual rental increases averaging more than 60 per cent until late last year. But the Abu Dhabi market is also slowing, Mr Guidoum said: "The prices for some locations and some properties have started to fall a little bit. There are some villas in Khalifa City that the landlord was asking Dh350,000 for. Now they're being rented for Dh300,000 and they're still looking for a tenant."
Commercial property rents have also dropped in the past three or four weeks, he said. Office space used to cost at least Dh3,000 per square metre, but now properties were available for Dh2,500. As with real estate agents in Dubai, Mr Guidoum said nobody really knew what the situation was with the rent cap, but like others he assumed the five per cent limit still applied. "There has been nothing to tell us otherwise," he said.
Despite the recent slowdown, Mr Guidoum said he still expected the lack of available housing in Abu Dhabi to bump up the rents this year. "Supply is very, very hard to find," he said. Lalit Hemnani, a property consultant with Hayatt Real Estate, said he was also assuming the five per cent rent cap applied. "There's a lot of news in the market that there will be a law but it's hearsay. We're waiting for a new law," Mr Hemnani said.
It was important the rent cap remained, he said, because some villas were being rented out at below the market rate as the rents so far had been limited by the cap. "If the rent cap goes, they will try to get the market price so the people here need to be protected," Mr Hemnani said. firstname.lastname@example.org