29 May 2018

Dubai: Do Rent Controls Work?

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Rental controls were first imposed in 2006 in Dubai. Rental rates have moved exogenously to the caps that have been refined ever since. The rate of change in rental rates have been due to a confluence of factors, ranging from exogenous events like the world financial crisis (in the first cycle) and falling oil prices (in the second cycle), to endogenous factors like the springing up of new communities ago address a housing shortage. What the city wide index reveals in the last three years is that the housing shortage issue has been addressed for the most part; this has in turn allowed RERA to swing the pendulum gradually back towards landlords by imposing a matrix whereby double digit rental rate rises can also be imposed, depending on the variance away from the bands.

For the most part, rental rates have reflected demand/supply dynamics and to the extent that price point have been observed, they appear to have protected the more affluent communities in the freehold space at the expense of the mid income categories.

Given that there is a shortage, what would be more desirable would be the building of more houses in the affordable segment; rent controls will only work to a limited extent as the data clearly indicates.

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