Saturday, December 23, 2006

Rent cap helps in keeping unhealthy entrepreneurs at bay

Dubai is the first among the emirates to directly interfere in keeping a tab on the rents so that it does not go out of bounds. The rental market in 2003-04 was based on a “free for all” policy. The mounting inflationary pressures gave way to a rent cap, which was exactly that was needed for Dubai in the year 2005. The response from Dubai resulted due to the spontaneous increase in rent anywhere between forty to fifty percent on an average during every lease renewal.

Next in line to Dubai’s response, was Abu Dhabi and Ras Al Khaimah that strongly voiced for a stipulation of the increase in rent during a year. Now it is over to Dubai to decide regarding the extension of the fifteen percent rent cap in the coming year and for contract renewals. There is also an on-going debate regarding the percentage that it should even be lowered to five percent. Though a final decision on the matter is yet to be taken, The Vice chairman and Chief Executive Officer of National Bonds, Nasser Al Shaikh is sure about the need to maintain a rent cap for Dubai. He adds that it will help in keeping unhealthy speculators away while retaining only interested serious long term investors. It also ensures that when it comes to attracting business, Dubai stays competitive in comparison to the rest of the region.

The Investment Director, Leads International, Denise McGinty is of the opinion that it is still a good idea to cap rents, because though one cannot obtain the 25% yield like before, still 8% to 12% yield can be achieved.

Ultimately, when most of the on-going developments are completed, the demand and supply in the housing market of Dubai will level up by itself. Hence as of now, the idea of rent cap is useful as a temporary relief measure.

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