Rent-freeze law will stabilise realty demand

Predictability in rents will have a positive impact on consumer confidence

Dubai Land Department has recently revealed that it is considering a proposal to introduce a new provision in the rental rule that will lock the rent for three years from the date a tenant signs a rental agreement contract. The UAE is not new to such innovative approach to rules governing rents. Sharjah has a rent-freeze law in effect since 2007 that forbids landlords from increasing rents for three years since the commencement of a new tenancy contract. Abu Dhabi, instead of freezing the rent for any specific period, has capped the annual rental increase to a maximum of 5 per cent per annum.

Clearly, a rent freeze for a fixed period and application of caps target bringing stability and reasonable predictability in the rental market that is important for both tenants and landlords. Rents in general and residential rents in particular have been softening in Dubai in recent years, thanks to big number of new supplies coming to the market.

The pandemic-related job losses, downsizing and salary cuts have forced most salary earners and small business owners to cut down on their expenses. With rents contributing to one of the biggest components in household budgets, many have moved to cheaper localities and or moved to smaller accommodations.

In the office and retail rental markets, too, the pandemic has brought in big changes as many companies have adopted highly cost-effective remote working strategies. Many argue that we are witnessing the beginning of a major structural change for businesses not only in the UAE but globally that will have huge ramifications for job markets, real estate, retail, and payments industry, among others.

Although it is too futuristic at this juncture to imagine that we can do away with brick-and-mortar structures for offices, macro trends suggest that a world in constant search of efficiencies will merrily embrace any practical, fungible and cost-effective solution.

Faced with supply side pressures due to the ongoing inventory bulge and demand side squeeze as consumers and businesses focus on efficiency in their spending, it is in the interest of all parties to bring some medium-term predictability in the rental market.

Although rent freezes or rent caps are not the ultimate solution to the inevitable structural changes, in the short to medium term, these measures can stabilise the rental real estate market, at least until the time market forces can be allowed to do the price discovery on their own.