UAE, Kuwait target property costs in inflation fight

 

Abu Dhabi lowered the ceiling on annual rent rises and Kuwait said on Monday it could wanted to tackle rising property prices as part plans to address growing concern about inflation across the Gulf Arab region.


Abu Dhabi, the largest member of the United Arab Emirates federation, said it would reduce the maximum rent increase to 5 percent from 7 percent, mirroring a move by neighbouring Dubai emirate earlier this month.

The UAE, the world's sixth largest oil exporter, is ploughing its windfall from record energy prices into infrastructure, tourism and industry, driving economic growth which is fuelling demand for homes and offices. Office rents in Abu Dhabi have grown about 40 percent in two years, property consultancy Colliers said in October.

"The need for such a measure stems from the strong economic growth Abu Dhabi experienced in recent years, along with rapid jumps in the demand for residential and commercial real estate," the Abu Dhabi Executive Council said in a statement.

UAE Central Bank Governor Sultan Nasser al-Suweidi said last year rents were the main driver of inflation in the second-largest Arab economy. Inflation hit a 19-year high of 9.3 percent in 2006, the latest available figure.

The central bank can do little to control inflation because it shadows U.S. monetary policy to maintain the relative yield on the dollar-pegged dirham currency.

Other Gulf states with dollar pegs face a similar dilemma. Oman imposed a cap on rent increases last year after inflation hit a 16 year-high and Qatar, with the region's highest inflation, says its considering intervening in the property market.

           

SURGING RENTS


Kuwait, which dropped its dollar peg last year to help contain inflation, has also set its sights on the property market.

Cabinet discussed the ruler's call for government and parliament to focus on tackling rising residential property prices, state news agency KUNA reported on Monday, citing Prime Minister Sheikh Nasser al-Mohammad al-Sabah.

Inflation in Kuwait, the Middle East fourth-largest oil exporter, hit a record of 6.2 percent in September, driven by surging rents.

Finance Minister Mustapha al-Shimali said on Sunday the government would probably raise salaries in the public service, where more than 90 percent of Kuwaitis work, by the end of February, according to KUNA.

The Abu Dhabi government expects the rent controls to be temporary and that supply in the property market would quickly catch up with demand and allow the market to "function without further government intervention," the executive council said.

"Large numbers of residential and commercial properties will become available in the short-to-medium term," it said.

Rents caps such as those and Abu Dhabi have a limited impact because they only apply to lease renewals, said Giyas Gokkent, head of research at the National Bank of Abu Dhabi.

Some landlords simply terminate the lease when they want to raise rents.

"The government is trying to bring inflation down, but it may not be as effective as it would like it to be," said Gokkent. (Reuters)
 

 

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