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Abu Dhabi removes annual rent increase cap


State employees risk losing housing allowance should they relocate to other emirates.

November 24, 2013 12:33 by

Nearly three months after the passing of a deadline that required all Abu Dhabi-based public sector employees residing in other emirates to relocate to the capital or lose their housing allowance, the emirate’s executive council has announced that it will scrap the five per cent cap on annual rent increases.

The decision will open up the property sector, in which many tenants are currently paying under-the-market rents. According to official news agency WAM, the executive council issued a decision to cancel the extension of the annual five per cent rent increase rate, as of November 10.

The cap on annual rent hikes was introduced in the capital’s property sector in January 2008, after surging demand drove rents higher and inflation with them.

“Many are paying under-the-market rents, so in some cases, rents may go up. However, with more supply and competition, it is laid out to be more open to market forces,” says Matthew Green, head of research at property services firm, CB Richard Ellis.

Prime residential rents for new leases in Abu Dhabi were flat in the second quarter of 2013, after growing by eight per cent in the first quarter, whereas secondary residential rents continued to fall, according to property consultants, Jones Lang LaSalle (JLL).

Demand growth driven by government spending and regulations to reduce commuting from Dubai has been partially offset by continued additions to supply, JLL reveals.

In September 2012, Abu Dhabi government informed state employees that if they lived outside the city’s limits, they would not be eligible for housing allowance, which accounts for approximately one third of their salaries. The government has previously said that the new rule was aimed at cutting traffic and road accidents.

According to a recent update from Cluttons, the average gain in residential property values in Abu Dhabi during Q3 (July to September) in 2013 was a robust 14.4 per cent, on top of an 11.2 per cent increase in Q2.

Are you a (soon-to-be) resident of Abu Dhabi? Will the scrapping of this five per cent cap on annual rent hikes affect your decision to stay in (or move to) the capital? 

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