Rent cap removal hits Abu Dhabi residents

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Dubai: There is no escaping the rental hikes in Abu Dhabi’s residential space, be it within the city or slightly removed from it.

The first three months saw a 10 per cent spike in residential rental rates in prime locations, while off-island homes shot up by 14 per cent, according to the latest date from CBRE.

On a year-on-year basis, rents in Abu Dhabi are more expensive by 20 per cent.
Abu Dhabi’s decision to remove the 5 per cent rental cap was the factor fuelling the increases, much to tenants’ dismay.

It has only been exacerbated by a steady supply of new properties being delivered to the market, and most of these carry a significant rental rate mark-up, market sources say. In fact, upscale properties that have been in the rental market over the last three years have “actually remained relatively stable even after the removal of the rent cap,” says the CBRE report.

“Abu Dhabi’s residential market looks set for a period of sustained price and rental growth. This follows on from 12 months of steady recovery during 2013.

“With landlords now effectively controlling rentals, there have been an increasing number of tenants choosing to relocate upon lease expiry as they are unwilling to meet with landlord-imposed rent rises. This situation has been found most prevalent in cases where tenants have been in occupation for long periods and are still paying historical rates.

“Newer tenants are more insulated against price hikes as they are generally paying closer to the prevailing market level.”

But the biggest crunch comes in the mid-tier residential area as off-island locations such as Khalifa City A and Mohammad Bin Zayed City become popular options.

On the mainland, Al Reef Downtown, Al Ghadeer and Hydra Village are commanding rentals that are significantly higher than similar non-community based properties’, CBRE notes.

Two-bedroom apartments within Al Reef Downtown development range between Dh80,000–105,000, while similar property types at Al Ghadeer and Hydra Village are from Dh65,000-85,000.

What does the current rental rate fluidity mean for investors looking to acquire property in Abu Dhabi?

“Rental yields in Abu Dhabi are definitely higher compared to Dubai’s at this stage because rents started to firm up only from mid-2013 onwards while Dubai had already gone through two years of sharp increases from 2012,” said Robin Teh, country head at Chesterton International.

“But compared to what they were in 2012, yields in Abu Dhabi — for select locations — are down slightly to 10-11 per cent from 11-12 per cent in 2011-12. Even then, there is still a lot that an investor can hope to generate from committing to a property in Abu Dhabi.

“As for specific locations, because new inventory is controlled at Al Raha Beach, an investor can get a good deal of traction on income; as for Al Reem Island, because there is much more capacity being generated by multiple developers, an investor needs to be very particular what he wants to buy.”

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