Why Abu Dhabi Rents Have Increased so Drastically
There is no doubt that rents have surged in recent times, starting in the middle of 2013, continuing throughout 2014 and still now they are going up, drastically in some instances. Across the city in 2014 on average rents went up 17% according to CBRE but there has been anecdotal evidence of even higher rises in some buildings for some tenants.
So let’s examine some of the factors which have led to this rise.
Abolition of the Rent Cap: In November 2013 the rent cap was abolished. The rent cap had operated to ensure that landlords could only raise the rent of their existing tenants by 5% per year. However when that tenant left the landlord would re-market the property at whatever rent he liked. The abolition of the rent cap stung tenants who had been in their units for many years and were paying below market rent. The rent cap was designed to keep rents down for tenants already in their units, it didn’t help people moving units or people coming into the country. Those who remember the peaks of 2008 will recall rents went through the roof despite the rent cap being in place.
Abu Dhabi Governments Workers Moved to the Emirate: Also in 2013 it was announced that all Abu Dhabi government employees had to live in the Emirate or they would not be given their housing allowance. This was described as trying to lessen accidents on the Dubai highway but some believe it was an attempt by the Abu Dhabi government to prop up flagging rental returns. A large number of workers moved to Abu Dhabi as a result, pushing rents up.
Metrics of Supply and demand: The Rent Cap and Government Workers being moved to Abu Dhabi have grabbed the headlines but the biggest cause of the rise in rents are simple increasing demand and a lack of supply. Abu Dhabi’s GDP and population has grown strongly since 2013, and as a result have needed more housing. Supply has been slow to come online. The big government back developers such as Aldar and Aabar have been very quiet and Abu Dhabi doesn’t have the volume of independent developers with land that Dubai does.
Tawtheeq and Split Villas: The Municipality has become increasingly aggressive about pursuing split villas and people sharing accommodation. Almost weekly we hear about Khalifa City compounds being shut down and the inhabitants told to leave. Those villas that have housed 6-8 family units can then only house 1 family. This drastically increases the number of people looking for accommodation and reduces the units of supply available.
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