Sharjah tightens regulations on laborer housing

When workers at Dubai company rioted in Sharjah where they were housed by the company it was Sharjah whose name made the international headlines. It's not surprising that the result will be further Balkanization of the UAE economy. Sharjah is no longer willing to house workers on the cheap for companies that employ them in another emirate (read, Dubai). The National has the story:

Two senior members of the Sharjah Government confirmed that the law was in the final stages of approval and just weeks away from coming into effect.

They said they were pursuing the amendment to the current legislation to improve law and order following a series of protests and violent skirmishes over the rising cost of living.

“Most of the companies are in Dubai, but the workers live in Sharjah,” said Sheikh Sultan bin Ahmed, chairman of the Sharjah Commerce and Tourism Development Authority. “The companies will be forced to either register their workers in Sharjah or find new accommodation in Dubai or the other emirates.

“If anything happens, it is usually Sharjah to blame,” said Sheikh Sultan, who added that the number of workers living in the emirate greatly outweighed the number of police officers available to contain labour protests.

However, the move would be unpopular with workers who commuted from Sharjah to escape Dubai’s high rental rates, said Burhan Turkmani, the general manager of the Dubai-based Al Rabiah Trading company, a food importer.

“Sixty per cent of my employees live in Sharjah,” he said. “It’s far too expensive for certain employees to live in Dubai.

“These people, they live there, they spend much of their income in Sharjah, their children go to school in Sharjah, and they only go to Dubai to work. It may be a bit harsh. Food prices and the cost of living are going up, so people are suffering as it is.”

With a more affordable cost of living than Dubai and lower operating costs for worker compounds, Sharjah has attracted thousands of construction labourers. Many are employed in Dubai or Abu Dhabi, where construction is expanding rapidly.

In recent months, Sharjah has been rocked by violent protests.

In April, more than 600 Asian labourers were arrested after a protest in the Al Nahda district. Workers from the Tiger contracting company attacked police with stones and bricks from an upper storey of a building under construction, the emirates news agency WAM reported.

Weeks earlier, about 1,500 rioting workers set alight management offices in a labour camp, clashing with police and officials.

Shehab el Orabi, the senior development manager at the Waterfront real estate project in Dubai, said he understood Sharjah’s motive for amending its labour law.

“I fully agree with them. Why would I have to take care of problems arising from labour camps there if they [workers] were not even working in Sharjah or contributing to the local economy?”

Mr Orabi said implementation of the law would likely encourage companies to build more modern accommodation facilities in proximity to the places that the men worked, thereby cutting the travel time to work and reducing the number of vehicles on the road.

About 250,000 vehicles travelled through Sharjah every day to locations outside the emirate, 50,000 of which were trucks, Sharjah officials have reported.

According to The National's story Sharjah's new regulations apply both to (1) laborers who are housed in company provided compounds as well as (2) workers in higher salary categories who find their own housing and commute from Sharjah to Dubai. I am surprised that group (2) is the target of the legislation. [Although it is not beyond imagination that if not, then companies in category (1) would turn their workers lose to find housing in order fall under category (2).]

Thanks to the Kipp Report for the pointer.

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.
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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.)

A rental market opportunity

The Gulf News today has a nice description of the way landlords will try to get around rent controls. In RAK the government has gone so far as to make it difficult to tear down your apartment building -- one device landlords use to evict tenants who were renting at controlled below-market rates.

The latest scheme is to buy out the tenants. This doesn't produce a gain for the landlord if the tenants would simply turn around and rent the same apartment for at the market price (the buyout to the tenant is the same as the change in the rent in this case). It does work if at the market rate the tenant would move to a lower quality apartment.

Here's a bit of the GN report

This new tempting tactic has recently spread in RAK where tenants are being promised money to evacuate houses and shops they had taken on rent long time ago.
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Officials said some of the tenants in the key areas in the emirate have been recently moving to remote areas including Shaam, Al Jeer, Al Rams and Ghaleelah where they find cheaper houses and at the same time benefit from the money they get from the landlords to evacuate.
Officials said the landlords do pay the expenses their tenants take to move their furniture and in other cases, the tenants sell their old furniture in excellent deals to their landlords who later dump such furniture in the garbage.

Housing and the bachelor imbalance

Gulf News helpfully has provided an article this morning to complement my previous post about innovative housing solutions. It covers the restrictions that governments in Abu Dhabi, Dubai, and Sharjah place on bachelors living in residential areas. Families about the character of neighborhoods changing when villas originally intended for families are rented by groups of bachelors.

A few quotes:

Amer Abdul Jalil Al Fahim, chairman of Al Qudra Real Estate, estimated that singles account for 50 per cent of residents in the emirate. "They are in dire need for houses that meet their needs. They must be integrated in the social fabric of the city, as they are important in managing businesses."

Al Fahim said that singles should not be segregated along social or professional lines. "Their houses must be near their places of work," he said, adding that labour cities may accommodate workers of construction companies but may not be suitable for other employees who run most of the businesses inside the city.
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Bachelors are facing similar housing problems in Sharjah and Dubai as they have been asked to stay away from residential areas. In Dubai, the Dubai Municipality had made it clear that bachelors can reside in flats but not in villas while in Sharjah they are allowed in designated areas like the Sharjah Industrial Area and Al Saja'a.

One of the main reasons for the municipalities to undertake the campaign is to provide a safe and secure environment for families. "It does not matter what the profession is, but bachelors are not allowed to live in residential areas in Sharjah," said a Sharjah municipality spokesperson.

As the article points out, most 'bachelors' have families leaving apart from them in their home countries. They have a name: Sort of Bachelors. The Times refers to these sorts as LATtes (living apart together).

Analysts predict soft landing in UAE property market :: KT