Abu Dhabi landlords weigh options of reintroduced rent cap

Two weeks after the Abu Dhabi Government reintroduced a rent cap in the capital, landlords and tenants are still weighing what this will mean for the rental market next year.

On December 13, the Department for Municipal Affairs and Transport announced that it had taken the unexpected step of reintroducing a law capping rents for existing tenants across the city to increases of a maximum of 5 per cent per year.

Coming at the start of the Christmas period when many residents head home for the holidays and at a time when rents across the city have been falling significantly, brokers say that many landlords and tenants remain unaware of the changes.

According Cluttons, average residential rents in the city fell 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.

However, with landlords now unable to recoup any significant discounts as soon as the market recovers, property owners may well be taking a tougher stance in their negotiations.

“I think possibly the effect of the reintroduction of the rent cap could be that rents start to stabilise next year,” says Andrea Menown, the head of investment sales at the Abu Dhabi-based property broker LLJ.

Ms Menown says that with most renewals negotiated at least two months in advance, the effect of the new cap will only be seen in rental data published in March.

“At the moment we are seeing that it is the larger and more expensive properties which are seeing the biggest falls in rents,” she says. “This is the case especially for villas, both privately owned and in compounds, as well as higher-end apartments on Reem Island where tenants have been re-evaluating their cost of living or been affected by job losses.”

Al Badie Group, an Abu Dhabi-based property company that owns 1,200 homes on Reem Island and in Abu Dhabi city centre, says that after cutting rents on some of its Downtown properties by 5 to 7 per cent and offering new tenants at its Beach Towers development in Abu Dhabi one month rent free, the company expects to keep rents flat next year.

“We expect to keep our rents fairly stable in 2017,” says Nivine Ali, real estate director at Al Badie. Adding that “2016 was a difficult year but the feedback we have received is that all of the job cuts have been made this year and we expect conditions to improve next year.”

But others say that with thousands of apartments across the city standing vacant, the reintroduction of the rent cap will do little to strengthen landlords’ negotiating positions.

“The recent introduction of the rent cap has had no impact on rents,” says Vaibhav Sharma, the chief strategy officer at MPM Properties, the property division of Abu Dhabi Islamic Bank, which currently manages more than 20,000 properties across the UAE.

“If a vacant unit is not leased for over two weeks, the landlord is often willing to negotiate a greater discount to secure a well-qualified tenant.”

lbarnard@thenational.ae

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