Abu Dhabi reinstates 5% rent cap

Residential rent increases in Abu Dhabi were again capped at 5 per cent a year on Tuesday, three years after the rent cap was scrapped.

The announcement by the Department of Municipal Affairs and Transport took property brokers in the city by surprise: in the current market they are more used to downward pressure on rents than on capping increases.

“Anything that gives tenants more protection has to be a good thing,” said Edward Carnegy, the head of Cluttons’ Abu Dhabi office. “I’m not sure whether there is an actual need for it now or for the next 12 months because rents are falling.”

Average residential rents in Abu Dhabi fell by 9.4 per cent in the year to the end of September and are expected to fall even further in the coming months as job losses and cuts in public expenditure continue to reduce demand.

Office rents also fell, with prime commercial space in the city down 5 per cent and secondary office rents down 8.3 per cent.

“It is important that rents in Abu Dhabi do not escalate,” said David Dudley, head of JLL’s Abu Dhabi office. “However, rents in Abu Dhabi are currently falling and we are not at a phase in the cycle where we expect to need a rent cap for some time.”

The Abu Dhabi rent cap was first introduced in 2006 in an attempt to stop rents from spiralling out of control because of an expanding population and very little residential construction.

The cap was originally set at 7 per cent a year, and cut to 5 per cent in 2010. In practice it became academic, because rents in the city began to fall as new homes came on the market in areas such as Reem Island, Raha Beach and Al Reef.

In November 2013, just as rents for new tenants were once again rising quickly, the Abu Dhabi Executive Council suspended the cap.

The municipality had planned to introduce a Dubai-style rent index, which would have divided the city into 10 to 12 zones and set a guide rent for each. However, work on this was abandoned because, unlike in Dubai, individual residential areas in Abu Dhabi contain too varied a mix of housing for an index to be practicable.

Rent controls around the world have been the subject of heated debate.

Critics complain that they redistribute wealth from landlords to tenants and discourage property owners from offering homes for rent, reducing the number on the market. Supporters say rent controls help people on lower incomes to deal with the cost of living and improve cities’ competitiveness as destinations for price-sensitive migrant workers.

“A rental cap isn’t needed in Abu Dhabi at the moment,” said Ben Crompton, the managing director of Abu Dhabi estate agent Crompton Partners.

“Rents are not going up anywhere in Abu Dhabi. If anything they are falling. I also think a rent cap is not a good idea anyway. It means people are discouraged from moving home and it penalises new arrivals.”