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Dubai: The new rent caps of 7 per cent announced on Monday in Dubai will have an impact on more than just property rentals, according to Nasser Saidi, the chief economist for the Dubai International Financial Centre. Because rental prices factor highly into the inflation rate, the new caps could result in rates as low as 6 or 7 per cent, Saidi said, a drop from the double-digit figures in 2006. These lower rates will in turn affect the local real estate market. Interest rates on mortgages, which have been in the area of 6 to 8 per cent, have actually been driven into negative levels because of effect of the current high inflation, he said. This means that the value of monthly mortgage payments have been reduced more than the cost of the interest payments.
These negative levels have had the effect of "subsidising" mortgages, Saidi said, while at the same time allowing buyers to purchase property that is quickly rising in value. This has encouraged people to purchase freeholds in the UAE, which has in turn alleviated some of the pressure on the rental market. A lower inflation rate will result in the "subsidy" being reduced, he said, although the actual interest rates mortgage holders pay will still be very good. "Even if it became 0 or 1 per cent, they are still getting a good incentive," Saidi said. This would also provide owners with extra capital, which can be invested in additional property or other assets or financial interests. At the same time, Saidi admits, the falling inflation rate will allow consumers to keep their current level of purchasing power. Even though renters in Dubai will benefit from both lower inflation and stabilised rents, the high rents have been encouraging development, Saidi said. Real estate and constructions firms, seeing a demand for additional property, have been increasing their investments into the region. Ryan Mahoney, managing director of Better Homes, a Dubai-based real estate company, said that rent caps of this type could provide a disincentive to further development if the rent caps are part of a long-term solution. Mahoney said there was little chance of investor confidence in the region being shaken by the caps, but said a statement by the government calling this a short-term solution would help maintain investor confidence. While the rent cap will help lower the inflation rate in Dubai, the declining dollar and "import inflation" will still continue to be a problem, according to Saidi. Import inflation occurs when goods are purchased from outside the country. Because of the recent increase in the strength of several foreign currencies, import agencies have had to pay more for goods, a cost which is passed on to consumers.
Your comments
It is a very good move. People with average incomes will surely appreciate this. But what about the peoples and families who are paying already higher rents in the last year when the increase was 15%?
Vaishali
Dubai,UAE
This doesn't help me. Our landlord made our contract not a yearly but half yearly which ended on Dec2006. Then he took the gamble of 15% increase and made it so. If he had stuck with the original contract of one year our contract would have ended in March and we would have got the 7% only.
Resalat
Dubai,UAE
I have doubts about the new rent rule. My contract expired on December 31, 2006. My landlord collected the cheques and renewed my agreement with a cost increase of 15 % around 10 December 2006, with effect from January 1, 2007. Under the new rule am I eligible for the rent reduction? For the same flat, for 2006 renewal I had paid an increase of 25%.
Anil
Dubai,UAE
What we are waiting for is someone to say that all companies should provide accommodation to all employees. And no more "funny housing allowances", then let us see what these economists will say!
Henry
Dubai,UAE
What about Sharjah. Is there any rent cap law for Sharjah?
Abdul Khadar
Sharjah,UAE
Although on paper all the rules have been implemented, I think the real estate market will employ a different strategy. I think they will hike rents by 15-20% like earlier and if the tenant goes to the municipality, the landlord will agreeing to the 7% hike but ask the tenant to vacate the next year.
Laxmi
Chennai,India
Can you show me one land owner or real estate which is following this 7% rent cap. When there was 15% no one was ready to accept it. How they will accept 7%? Here landowners and real estate companies are the rule makers.
Name withheld by request
Dubai,UAE
The problem is not the rise in rents. It's basically the pay. Rents keep increasing on one end and on the other there is no news about the increase in wages. It's the central point. I know a couple of people who used to have families residing in Dubai and as the cost of living increased they are reduced to living separately with their families back home and themselves in bed spaces.
Habeeb
Abu Dhabi,UAE
Really appreciated. Hats off.
Narayanan
Sharjah,UAE
Thanks for the above rule from the Government, but I think that real estate people will play games, telling tenants to vacate the house as they need it for their own staff and then increasing the rent by 7% and an extra 5% for maintenance and some other charges at 5% etc.
Shekar
Deira,UAE
Well capping the rent in this way isn't a permanent solution. There are other areas as well where people are experiencing sky rocketing prices, the government here should learn from the developed countries like Canada, USA and Australia. Dubai can't be compared to those countries, inflation there is under control. Even if it rises by 2 to 3 per cent, it just happens in two or three years. Prices don't go up the way it happens here.
Sarfaraz
Karachi,Pakistan
The 7% increase in rents in Dubai will definitely help average earners. Now some basic necessities like transportation, food and education will be improved in some ways. I hope other Emirates will follow because our Landlord in Al Nahda Sharja is increasing up to 35% for new contracts.
Olma
Manila,Philippines
Almost all buildings now have a high rent. That's why this rule will not effect normal employees. I think people will have to look for a job in another Middle East country.
Aljabir
Dubai,UAE
Thanks to Mr Nasser, the Chief of Economist. This type of VERY GOOD REACTION is needed in the UAE for normal people. Thanks very much sir.
Rajeev
Dubai,UAE
Well actually it's good news that the rent cap is still low compared to last year. But we are worried about whether the landlords will actually follow it or not.
Shaista
Dubai,UAE
It's excellent. But why was the decision last moment? We normally renew our flat in Dec 2006. This decision was made very late and didn't benefit us in any way, except for regretting.
Kirti
Dubai,UAE
The existing rental situation in Sharjah is not much different from Dubai. The price has gone up which is now almost matching Dubai. If we live in Dubai we can save on petrol cost also. So we would like to know, what the Sharjah Municipality's decision will be on rent caps within Sharjah.
Arun
Sharjah,UAE
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