Five Reasons Not to Get Excited About the New Rent Cap

So, we’re hearing from a lot of sources that Abu Dhabi Department of Municipal Affairs and Transport have put out a message saying the rent cap is back, and back at 5%. Let’s look at what this means and why it is unlikely to stick:

1) The Abu Dhabi Department of Municipal Affairs and Transport (ADM) are the new real estate regulators pursuant to Law 2 of 2015. They don’t however have the power to re-institute the rent cap by themselves, only the Executive Council can do this. We must assume that this has been done by the EC and the ADM are the mouthpiece – but let us see what the exact wording and method of implementation is before getting too excited.

2) The rent cap is effective from 13 December 2016 but don’t expect it to be used anytime soon. Rents are on the slide for most areas and it will take time for the property to heat up enough for landlords to even think about a 5% hike.

3) The Abu Dhabi Government seemed to fall out of love with the idea of a rent cap in November 2013 when it ditched it. This act was seemingly to allow landlords to take full advantage of a rising rental market. To institute a rent cap in a falling rental market makes no sense unless it is to re-assure residents of Abu Dhabi that they are going to be looked after, but will this last into a prolonged rent recovery?

4) The largest landlords in Abu Dhabi are government companies and very politically connected individuals. Introducing a rent cap is like turkeys voting for Christmas. They did it once and it lasted from 2006 to 2013, how long will it last this time? It is worth noting that the cap will only come into effect once rents have hit rock bottom and they start to come back up – the pain for landlords might be too great.

5) We will have to check the wording of the new law but if it doesn’t come with protections stopping landlords not renewing leases then it will be toothless. If a landlord can get more than a 5% increase in the open market then he will just give his tenant a notice to quit and get a new one in at a higher rent.