Provisional rental index could lead to lower price increases in the future, according to JLL analyst
The Abu Dhabi government’s expected introduction of a rental index is likely to cool the growth in prices in the UAE capital, a leading real-estate analyst has said.
The Department of Municipal Affairs (DMA) and other agencies are reportedly set to launch a provisional index, which would typically track prices in various areas, by the end of the year.
Craig Plumb, head of research at Jones Lang LaSalle, said the index could temper rent rises in Abu Dhabi, providing some respite to tenants following sharp price increases in 2014.
“The new index is likely to combine with a cooling in market conditions to result in a somewhat lower rate of growth of rents over the rest of the year, with JLL expecting a full-year growth of less than 10%,” said Plumb.
A similar scheme in neighbouring Dubai is used as a guide for landlords wishing to raise rents.
Plumb said the impact of an Abu Dhabi index is difficult to predict “until further details of both the level of permitted increases and how the index will be implemented” are known.
“It is however most likely to result in a stabilization of rentals across the Abu Dhabi market,” he added.
The index being prepared by the DMC – along with the Department of Economic Development, the UPC and the Abu Dhabi Council for Economic Development – is likely to establish for tenants a degree of protection against future rental increases, Plumb added.
Abu Dhabi removed a 5% cap on rental increases in late 2013, and prices rose sharply last year. Average residential rents in the UAE capital rose 17% in the fourth quarter of 2014, compared to the same period the previous year, real estate consultancy CBRE estimates.
Rents increased by a further 4% in the first three months of this year, according to MPM Properties, and are expected to continue rising due to a shortage of new housing supply.