A top Abu Dhabi official has called for more stringent controls so that the new and lower rent cap can be effectively enforced even on those buildings that are privately managed.
Abu Dhabi reduced the rent cap from seven per cent to five per cent on January 13.
Dhahi Al Suwaidi, Assistant Undersecretary for Financial and Administration Affairs at the Abu Dhabi Department of Commercial Buildings, asked for decisive controls to enforce the new decisions. He said his department is committed to enforcing the decision, but the problem was with the buildings not under its management.
“Such buildings are in violation of the law since the first day it was enforced and are still in violation with no deterrent,” he said.
Al Suwaidi said his department has already begun to enforce the emirate’s Executive Council’s decision to bring down the rent cap.
The department has stopped the renewal of rent contracts under the previous cap specified by Rent Law No 20 of 2006. Computers have been programmed on the lower cap, said Al Suwaidi.
He described as very positive the decision, saying it will lead to the stability of the housing market in Abu Dhabi. It will curb the negative impact of inflation, said Al Suwaidi.
However, the head of the Rent Disputes Resolution Committee, Mohammed Al Hamily, said last year, the first year of the committee’s existence, it saw the issue of 2,022 judicial rulings against landlords in violation. He said 60 per cent of them had raised rents by up to 400 per cent.
Al Hamily said the committee is ready to receive complaints from tenants. “We immediately deposit the old rent value in an account under the name of the committee at Abu Dhabi Commercial Bank. And we give the tenant full security.
“We have managed to issue several decisions from Abu Dhabi Municipality not to evict a tenant out of his residence for maintenance or turning homes into hotel apartments. We also co-ordinated with Abu Dhabi Distribution Company not to discontinue the power supply at the landlord’s request.”
The two-month delay in the formation of the rent disputes committee had encouraged several landlords to increase rents at inflated rates.
And when tenants refused to leave they evicted them under the pretext of obtaining approvals from Abu Dhabi’s Tourism Authority to turn their residential buildings into hotel apartments. Or they claimed they had obtained maintenance permits from Abu Dhabi Municipality to carry out some modification in the residential units.
Al Hamily said buildings run by real estate agents and investors form the largest segment of the disputes for the committee. He said this segment is involved in negative practices, which aim to achieve quick profit regardless of residents’ social conditions. This also affected the image of the emirate.
The Department of Commercial Buildings currently manages 45 per cent of Abu Dhabi’s 7,250 residential buildings that have a total of some 100,000 housing units. Some 95 per cent of the residential buildings had been managed by the department till early 2005.
Meanwhile, the Director of Rents, Mohammed Abdullah, expected the percentage to go down to 20 per cent in few years time, saying last year the management of some 850 buildings shifted from the department’s responsibility to that of national owners.
Abdullah said this phenomenon has become a source of concern because national landlords assign the management of their buildings to real estate agents and investors who lease the buildings at inflated rents reaching 300 per cent of the department rents, and of course, they violate the law.
His Highness President Sheikh Khalifa bin Zayed Al Nahyan, in November last year, issued the new rent law after the Abu Dhabi housing market witnessed high increases to the extent that a two-bedroom and hall flat was renting for Dh120,000. Now it has gone up to Dh135,000, according to Al Suwaidi who said the market now sees an unprecedented shortage in residential units.
It is because of this shortage of houses in the capital that the Department of Commercial Buildings had to resort to the residential draw system to achieve transparency and fairness in renting whatever residential units were available with it.
Mohammed Abdullah said the number of people taking part in the draw reached 398,211 till January 12 since the start of the draw system on August 23, 2006.
According to studies conducted by real estate development and marketing companies, the gap of demand for residence in Abu Dhabi ranges from 35,000 to 40,000 units this year. And once big real estate projects built by 20 firms are completed by 2012, some 240,000 units will enter the market. But these will not satisfy the demand, which will grow to some 290,000 units by then.
In the meantime, Chairman of Manazil Real Estate, Mohammed Muhana Al Qubaisi, stressed that Abu Dhabi is currently facing an unprecedented housing crisis which explains the crazy increase in rents. “The crisis will witness a limited breakthrough in two years, and rents might stabilise in the next five years.” But rents will not go down since the majority of new projects belong to luxury housing, while medium housing, which meets the needs of some 70 per cent of Abu Dhabi residents, is not available at the moment, and that means the crisis might continue for a long time.
Al Qubaisi, however, believes government intervention by issuing a rent law and now bringing down the rent cap is a “good omen”, which proves the government’s intervention to control the market. “And what is needed today is quick expansion in medium housing because luxury housing is inevitably heading for recession.”
Al Qubaisi stressed government intervention takes several forms, saying it does not conflict with the free economy philosophy adopted by the emirate and that has attracted huge investments.
Last year Abu Dhabi’s rate of inflation went up to 11.5 per cent from nine per cent, while this year it is expected to further increase to 13 per cent, according to the Department of Planning and Economy.
Rents now account for about 40 per cent of the income of nationals and expatriates.
The Executive Council said the aim behind bringing down rents is to achieve more stability in the emirate’s real estate market in such a way as to curb the inflationary impact of rent rise and its likely negative impact on the competitive position of Abu Dhabi. It’s also aimed at achieving the sustained economic growth and social stability of families and individuals, both nationals and expatriates.
Economic expert Ridha Muslim, Chairman of Truth Economic Consultants, said the decision to bring down the rent cap will curb inflation. The majority of traders in the emirate blamed their last year’s price increases on rent rises.
Muslim said the five per cent cap is not big as a drop to zero per cent was expected to alleviate the burden on limited-income expatriates. Also, it would have encouraged more foreign investments, some of whom last year chose neighbouring countries where rents are lower, which means less project costs and more profits.
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