DUBAI, 25 November 2005 — Soaring rents in the Gulf business hub of Dubai are posing a risk to the massive influx of foreign expertise targeted by the authorities, who have reacted by slapping a 15-percent cap on all rent rises.
Sheikh Mohammed bin Rashid Al-Maktoum, the crown prince of Dubai and architect of the emirate’s boom, decided Nov. 11 that rent rises “should not exceed 15 percent of the annual rent” until the end of 2006.
Rents in Dubai have soared in the past couple of years to record levels, with residential rents surging by an average of 38 percent over the past 12 months, according to some reports.
The cap, unusual in a city where prices are normally set by supply and demand, appears to reflect Dubai’s fear of the impact of rising costs of housing on its competitiveness to attract foreign business.
Foreign companies have been favoring Dubai as a regional hub to serve the Gulf region over the past few years.
The trend has transformed this once-dormant harbor into a vibrant city which has embarked on a number of breath-taking construction and tourist projects.
But other regional centers are increasingly in competition with Dubai for a share of the action.
Official figures put inflation in the United Arab Emirates, of which Dubai is a member, at 4.7 percent last year, but it is not expected to exceed five percent in 2005.
Apart from rents, which are the main factor fueling inflation, prices have also been pushed up by a 25-percent increase in Emirates public sector salaries in April and a 30 percent hike in petrol prices since early September.
The rent cap comes as a relief for foreign residents, who represent some 80 percent of the population of Dubai.
“Before arriving to Dubai last month, I paid a 5,000-dirham ($1,350) security deposit for a little villa... after being told the rent would be 65,000 dirhams ($18,000),” said Daniel Khayat.
“But as soon as I got here, I have been told the prices got higher and my villa was going for 85,000 ($23,000). This is only in a few weeks’ gap,” the Lebanese engineer said.
Elias Mandas, a Greek architect, said his rent for a one-bedroom apartment had doubled in three years to 70,000 dirhams ($19,000).
Indian estate agent Moussa Ajass said his clients were reluctant to renew their rental contracts. Some of them were even considering leaving Dubai if rents continued to soar.
A number of companies have reportedly started relocating to neighboring countries due to the surging cost of housing, which is largely incurred by employers.
“This decision (to place a rent cap) might be a bit late,” said real estate expert Abdullah Bessis.
“The high rates of rent have affected Dubai’s competitiveness... Many companies and investors have already redirected their interests to places like Bahrain and Qatar,” he said. “Others have chosen Oman and Egypt, or even Beirut.”
Articles on the impact of high rents on business have become a common feature in the local press, with one warning that “high rents might push foreign companies to leave Dubai.”
Bessis blamed the record surges in rents on the lack of regulations which would set a limit on increases and protect tenants.
But analysts have forecast an easing in the rental market in the near future as numerous real estate projects are being finalized, bringing thousands of new apartments onto the market.
“There’s much more demand than supply in Dubai at the moment, but this won’t last indefinitely as more towers and mega projects come on-stream over the next two years,” said a report by Asteco, a leading property management company. “We expect current prices to cool down.”
Meanwhile, real estate expert Bessis expressed fears that the new cap would give landlords a pretext to increase rents by 15 percent, even if they were not planning a hike of that level.
