Friday, October 19, 2007

Rent controls: will they be softened?

Gulf News
Property analysts have cautiously welcomed proposals for a new rent cap scheme that would allow landlords to appeal for rents to be adjusted in line with market rates.

An official at the Real Estate Regulatory Agency (Rera) yesterday told Gulf News that landlords who feel the cap is keeping rents below market rates should be given the opportunity to hike prices above the restriction in line with a benchmark recommended by Rera.
...
Cases have emerged in new shopping malls and commercial complexes where a developer will offer discounted rents during the first year of operation as an incentive to attract tenants to the development, she said. "Landlords who signed such tenancies cannot currently apply for any increase in rents to bring them in line with market rates," she said.

According to Rera, an index of rental prices will be formed to help the rental committee decide the outcome of rental disputes.
On the same date the Gulf News editors write
The logic behind the rent cap seems exemplary. Landlords in Dubai in many cases had been able to exploit conditions in which rapid demand was overwhelming supply, to the point where delaying the release of units promised even more money in the bank.

Naturally, those desperate for affordable accommodation were delighted by the cap's introduction, since we've all been hit in the pocket, whether it's for school fees, food or transport. The cost of living has become a source of considerable angst for households, and a factor also for businesses considering whether to locate here.

But controls are an imperfect approach, which is why reviewing the issue is timely. If units are not reaching the market because landlords are withholding them on grounds of inadequate return, then the situation is only aggravated by artificial intervention. That's the law of unintended consequences in action.
There's a contradiction in logic in the editorial - how can removing the rent control lead to an expansion in the number of units available if you've said in the first paragraph that the "exemplary" logic of the rent controls is that units were being withheld absent the controls?

What we know is that, prior to rent control, demand for housing grew very rapidly relative to supply and rents jumped up considerably as a result. And the trend of rapidly growing rents is likely to continue as it takes time for supply of housing to catch up to ongoing growth in housing demand. This is entirely consistent with a competitive (non-monopoly) market - which is one where no one supplier has an incentive to withhold product to drive up the market price for all.

Rather than rent control RERA should be asking whether there are elements of monopoly in the market, and attacking those directly. We have some evidence, though, that the market is relatively competitive because economic theory tells us that rent control will exacerbate shortages, and this appears to be exactly what has happened.

In short, rent control has had the opposite of the intended effect: fewer units are available, not more. The closer the controlled price is to the market, the faster rents will return to pre-existing levels because suppliers will be in a greater rush to bring units on line. (Footnote: Underlying land values are another matter. If they are increasing (and they may well be given the value of living in Dubai) this will be reflected in increased rents.)

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1 Comments:

Anonymous Anonymous said...

I am an Eurpean expact that as many others I bought a villa at the Lakes.
The property was rented out by Emaar in August and sold by Emaar the same year in November. Does a developer like Emaar need that just to put more money in their pockets?
I was sold the property under false allegations by the Real Estate Agent, who said there was a legal notice for the tenants to vacate. Such notice never showed up.
The property came with Tenants and Sub-tenant. The Tenant being Zayed University with a Sub-tenant, a teacher they claim. They refuse to show identifiation of the person inside.
The Tenancy Contract was comming to and end on the 30 June 2008. I asked the Tenants to fix a couple of cluases they were violating from their Tenancy Contract, but both refused to fix anything. The University states it is teh teacher's responsibility to fix and teh teacher states it is teh Universitie's reposnsibility.
No one assumes no responsibility for damage to the property, and says the person living inside must pay. Under these conditions I denied to issue them a new Tenancy Contract when their Contract expired.
On top of this they have not been paying rent for 1 month.
How am I supposed to pay my mortgage and pay rent somewhere else and live off my salary without receiving any inocome from my property?
I opened a case at Dubai Rent Committe and I already have a Dubai Courts Public Notary issued by me notifiying them to make payment fix the damage and vacate my property but they dont do any. I also have a Police report confriming the violations.
Dubai Rent Committee has left the case open until September not taking action in my first hearing where rent was already overdue. I was also told the Tenancy Contract Conditions do not have to be respected for the tenants to be allowed to continue in my property. So what is the value of having a Tenancy Contract? I understand the tenants need protection, but how about the Landlords? How can you tell someone to wait that they will pay you in the future and not issue a eviction, which is what the Law states?

11:46 AM  

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