Rents for homes in the capital have shot up by 20 per cent this month despite earlier forecasts that they would fall, said real estate authorities.
The hike is the result of a deepening shortage of residential units due to an influx of residents from Dubai and the granting of 100 per cent increases in accommodation allowances by many companies, particularly those in the petroleum sector. In addition, many landlords are refusing to let out units for less than the asking price.
Rents declined by between 10 and 15 per cent from April to the beginning of June. Tenants and property agents expected to see further falls this month and in July because thousands of residents were expected to leave Abu Dhabi because of rising living costs and job terminations – but rents have risen dramatically.
Real estate professionals said rents were going up in cases where the management of residential buildings had been transferred from the government's Administration of Commercial Building (ACB) to national owners or real estate companies.
They said a major reason behind the hike was the refusal of such owners to accept that rents had fallen.
"The majority of these owners have stopped renting their properties, leading to a reduction in supply and forcing tenants to take the remaining properties on the owners' terms and agree to higher rents," said one.
The sources said rents would continue to rise by up to 25 per cent during July and August. They would then gradually stabilise towards the beginning of next year when the completion of 30 large residential towers in Zayed the First Street would boost the supply of units. Rents would then fall by 20 per cent with the completion of residential towers on Al Reem Island.
"What is happening in Abu Dhabi today is beyond imagination," said Khaled Mohammed Ibrahim, Executive Director of Al Bayan Real Estate. "We used to rent a standard one-bedroom apartment for between Dh110,000 and Dh115,000.
"We expected a decline in June with the academic year ending and many families departing for good, but what happened was the total opposite. Over the past two weeks we have been renting one-beds for Dh130,000 to Dh135,000, two-beds for Dh170,000 to Dh180,000 and three-beds for Dh250,000 to Dh280,000.
"The power of the property owners is the main reason for the hikes. The majority of owners received their residential buildings from the ACB and do not owe banks any debt, and this encourages them to delay renting out units until the right customer – who will pay a high price – comes along.
In addition, the total rent is credited to their bank accounts and not 25 per cent as used to be the case when the buildings were managed by the ACB."
Ibrahim gave as an example of an old building that was previously managed by ACB but is now run by his company on behalf of its owner.
"The rental value of a two-bedroom apartment in that building was Dh70,000 but the owner asked us to rent it for Dh230,000. We told him that was crazy, but after two days he came to us with a new tenant from a government-owned company who was willing to pay Dh220,000."
Khalid Salah, President of Abu Dhabi-based Baynounah Real Estate, said large government-owned companies were partially responsible for the hikes. Oil companies, in particular Adnoc, had increased the accommodation allowances they paid their staff by 100 per cent – an employee who formerly received Dh150,000 now got Dh300,000.
Salah added: "Rents will continue to rise in the next two months by at least 20 per cent and the rental value of a two-bedroom apartment will be between Dh180,000 and Dh200,000, with a three-bed costing Dh320,000.
"The rental value of a villa in Abu Dhabi will reach Dh500,000 even though it was Dh250,000 only two months ago. This is because villa owners are dividing properties into two residential units and charging Dh250,000 for each.
"The real estate market in Abu Dhabi badly needs to be regulated by law. It is neither acceptable nor logical to leave the market to owners who rent out property as they like and charge the prices they want."
Many tenants take complaints about landlords to the Judicial Conflicts Settlements Committee, but settling a case can take a long time. Some landlords are paying existing tenants Dh100,000 to vacate a property so they can re-let it at a much higher rent.
Meanwhile, Abdul Rahman Al Shibani, General Director of Al Ghanem Real Estate Management, said office and showroom rents in Abu Dhabi had fallen by 20 to 30 per cent. The rate per square metre had gone from Dh3,000 to Dh2,200.
Emirates Business 24/7
June 28, 2009