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26 February 2024

New rent law to put a cap on inflation

By Amjad Abu Al Ezz and Nitin Nambiar




The new rent cap decree will help control inflation and regulate the property market until an expected increase in the supply of housing units next year, business leaders and economists said yesterday.

A decree signed by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, lowered the emirate’s rent cap by two percentage points to five per cent from the existing seven per cent, effective from January 1, 2008.

“The new rent cap signals the intention of the authorities to control rent inflation, which is part of the overall inflation. The government has given a clear indication of its policy on controlling inflation with this measure. However, the challenges with regard to rent caps as an anti-inflationary measure are about enforcement and the possibility of evasion,” said Nasser Saidi, chief economist of Dubai International Financial Centre.

“The most helpful measure in controlling rent inflation would be increasing supply. I expect an increase in delivery of both office and housing units in 2008. We will see acceleration in the supply and delivery of units, which have been delayed, thereby decelerating rent inflation in the next year,” said Saidi.

Ahmed bin Bayat, Secretary-General of the Dubai Executive Council, confirmed the new rent cap is a step in the right direction and will help rectify the situation of the real estate sector in general, especially under the shadow of growing inflation.

“The law will bring back balance to the sector and decrease inflation. Besides, the law will consolidate Dubai’s competitive ability in the region and its capability to attract foreign investments. All that will be reflected directly on the economic situation,” Bin Bayat said.

Bin Bayat added the step came at the right time, especially with the growing demand on property in Dubai, due to the growing population and an increasing number of firms wishing to work in the region via Dubai.

He confirmed the cap will help reduce the cost of several products and services associated with the realty market. 

Ahmed bin Bati, Director-General of Dubai Customs, added: “The law will limit inflation... the high cost of building materials and land obliges developers and landlords to raise the prices of their units.”

Abdullah Al Saleh, undersecretary at the Ministry of Economy, said: “Reducing the rents will directly help reduce the inflation percentage. There are no accurate figures on the extent of rents affecting the inflation percentage. However, estimates show it is close to 36 per cent, which is close to the rate of the family’s expenditure on accommodation estimated at 36 per cent.”