Sunday, March 18, 2007

Landlords find new ways to get around Abu Dhabi rent cap rule :: Gulf News

Quote:
Residents interviewed said they are not issued with tenancy contracts and so they cannot complain to the Rent Committee over illegal increases.
...
A. Abdul Qudoos, another resident, said people who have shared accommodation but have not signed contracts have no legal rights and have no where to complain to.

Abdul Qudoos said one of the many ploys employed by middlemen is to ask the tenant to vacate the flat because the contract is not renewable or the building is to be refurbished or demolished.

Another trick, he added, is that the landlord wants the building for his personal use. "After vacating all existing tenants, the landlords will rent these flats out to new tenants with a 50-100 per cent rent increase."
...
Our landlord has kept a notice near the lift announcing that the rent has been increased by 10%, and if anybody has objections, they have to vacate within seven days. All maintenance expenses should also be borne by the tenants.
R. Sabu
Abu Dhabi,UAE
...
I am living in a Bur Dubai apartment for the last seven years and the building always had parking facilities on a first come first basis. Last week, all the tenants received notice that they have to pay Dh 5,000 per year for reserved parking and it will no longer be on a first come first basis. This is very disappointing coming from such a reputed landlord.
Pete
Dubai,UAE
Holding rents below equilibrium levels creates a shortage. Landlords know there is a line of eager renters who have not been able to find accomodation. Thus they can shift costs to renters, charge for services previously provided without charge, and skimp on maintenance without fear of losing tenants. And find ways of harassing tenants to leave.

None of this would occur were rents free to adjust to their new equilibrium level.

If Abu Dhabi has become too expensive to live in then in a free market the adjustment takes place this way: Workers begin to leave pushing up salaries until a new equilibrium is established.

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5 Comments:

Blogger Per Your Request said...

Well Put, I had the same argument but in the case of Oman.
http://peryourrequest.blogspot.com/2007/03/its-landlords-market.html

4:55 PM  
Anonymous Anonymous said...

None of this would occur were rents free to adjust to their new equilibrium level.

If Abu Dhabi has become too expensive to live in then in a free market the adjustment takes place this way: Workers begin to leave pushing up salaries until a new equilibrium is established.


"New Equilibrium level"?

How long will it take to reach that level?
Also, why use the example of a free market when Abu Dhabi is not one ?

Regardless of textbook economics on how rent caps are bad, it cannot be denied that the cap has helped many people. Yes, the tenants quoted are suffering, but their landlords would have made them suffer even in a scenario without a rent cap. There were no rent caps in 2005, yet there were plenty of buildings with horrible maintenance. Why is that so?

3:28 PM  
Blogger John B. Chilton said...

Anonymous,

It's not merely textbook.

1. Markets adjust to equilibrium rather rapidly. They only creak and groan when the government slows their rapid adjustment. In this case I also have in mind that workers do not have the right to change jobs without leaving the country. This exacerbates the problems in the rental markets.

2. Let's not forget about those would be renters who cannot find accomodation due to the rent cap and are doubling up. And the future would be renters who won't find housing.

3. The pre rent cap conditions of low maintenance reflect the fact the renters themselves were not willing to pay for higher quality accomodation. Landlords respond to the preferences of the renters. It's in the landlord's interest to improve maintenance as long as the cost of that maintenance is less than the extra renters are willing to pay in the form of higher rent. There are afterall well maintained apartments too for those willing to pay.

4. In what sense is the market not free? I would be interested to know if its monopolized, or unnecessarily regulated. Or if owners can collude easily and effectively without fear of government sanctions.

3:48 PM  
Anonymous Anonymous said...

I would suggest that the rent market here is not free in the traditionalal "open market" sense. The shortage of housing accommodation forces major overseas companies such as banks, oil companies etc to pay for staff accommodation. This means they hand out annual rental amounts of USD $40 k and up to their staff who jump in and simply pay the rent without question as its not coming out of their pocket. This skews the market because this aforementioned group represents a significant proportion at the medium to top end of the market. This has a trickle down affect as well which then affects the rest of the market. This "artifical floor" allows the landlords to quote crazy rents and achieve them. the lack of transparency in the market place as well contibutes to a lack of informed renters / buyers who are basically easily panicked into accepting high rents all the time and thus helping the market to rise.

Just some thoughts and enjoy the blog - Gordo / AD

3:37 PM  
Blogger John B. Chilton said...

Gordo,

You raise an interesting point. It parallels some of the reasons that employer provided health insurance in the US is thought to skew that market.

It raises the question, why don't the companies provide an encashment where the employee can keep what he doesn't spend.

Another thought is that the UAE market has many renters coming here on a short term basis and its not worth it for them to take care in their purchase. The more uninformed renters, the less discipline there is in pricing.

3:43 PM  

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