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What Do Greedy Landlords and Unicorns Have in Common?

What Do Greedy Landlords and Unicorns Have in Common?

They both don’t exist.

I’m writing this article in response to a comment someone made on an article I shared on rents falling in Abu Dhabi. It was a comment on landlords being greedy by hiking rents 20% in 2014-15 and how they are now getting left high and dry.

Greedy property owners who ask for above market rents never become greedy landlords because nobody rents their property. They rent from the other guy who is asking for less. If all landlords are asking for the same rent and people are paying it then that is the market price. If they are all asking for that rent and no-one is paying it then one of them will eventually blink and lower his rent to lease his unit.

The only way this might not be true is if there were so few landlords in an area that they could all collude to drive rents up. That is not the case in most of Abu Dhabi.

In 2014 rents went up 24% in one year, through a combination of population increase and a lack of supply, not through greed. The effects of supply and demand in an effective market can only be counteracted by regulation, cartels or other anti-competitive behavior. Not by greed.

People think that landlords are greedy in the UAE because of huge supply and demand fluctuations.

In our home countries, the population grows by about 3-5% per year. Nice and predictable, builders can plan for it, and rents and sale prices may rise or fall but changes are generally modest. The UAE is different because it relies on migrant labour. Its population can rise 10% in one year and stay flat the next, depending on jobs. Developers can’t predict the demand so build sometimes when they shouldn’t or don’t build when they should. This combines to create huge imbalances in supply and demand and big rental price increases and decreases.

People see these huge rent hikes caused by supply and demand imbalances as some sort of sinister force, the “greedy landlords” because they aren’t used to it from their home countries and can’t understand how it happens here.

It’s the Unicorns.

 

Abu Dhabi Real estate agents

Ben Crompton

Managing Partner

ben.crompton@cpestateagents.com

Call – +971 50 6145199

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