Research Firm Assails Rent Control in Middle East

Rent control, seen by many economists as old-fashioned, has recently made a surprising comeback in one group of high-growth, dynamic economies – the Gulf.

In December 2007 Dubai’s government toughened up its 2005 Rent Law and reduced the maximum 2008 rent increase to only 5%. Abu Dhabi has likewise capped 2008 rent hikes at only 5%.

In neighboring Qatar, a rent freeze has been implemented while the government is determining the new rent increase cap. For the past two years to February 2008 rent increases were limited to 10% annually

In adopting rent control the Gulf has moved in the opposite direction to the rest of the world. Elsewhere, rent control regimes have generally been dismantled or softened since the mid-1990s.

Rent control has been removed in most of Eastern and Central Europe. Asia has also followed the trend: China, Japan, Malaysia and Singapore have lifted rent controls since the early 2000s.

The Gulf measures have dismayed landlords, and alarmed property investors.

In an extended research article, regimes in about 40 countries are reviewed by the Global Property Guide, an international research firm.

“We believe that rent control is generally harmful,” says Prince Christian Cruz, senior economist at the Global Property Guide.

“But rent control can be benign, if: 1.) it is implemented so that its market-restraining effects are modest; 2.) it helps to defuse public protest about high rents; and 3.) it assists landlords and tenants by providing an agreed framework for contracts,” he continues.

“Most of these conditions are not present in rent control measures in Qatar and UAE. If rent control persists in its current form, the property market boom might grind to a halt,” Cruz notes.

According to a study by economists Basu and Emerson, “he removal of rent control can not only increase efficiency in the rental market, but can also lead to a general lowering of rents, making all tenants better off.”

“Qatar and UAE can learn a thing or two from Canada,” says Cruz. “Although the laws appear to be pro-tenant, the system is not entirely disadvantageous to landlords. Allowable rent increases are based on each province’s CPI, allowing regional disparity,” he continues.

A landlord can usually petition for a rent increase above the “rent increase guidelines” set for the province. Landlords doing so have to apply to that province’s rent authority. Landlord-tenant disputes are resolved by the provincial (small claims) court system, or through a tribunal/arbitration system. The system is very efficient.

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Prince Christian Cruz, Senior Economist

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Email: prince@globalpropertyguide.com

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