Monday, January 22, 2007

The 7% Solution (2)

For most properties in Dubai, the 7% limit on rent increases means that there is actually a freeze (since rents increased by more than 14% last year, and the 7% is for both of the last two years).

It is not clear from the newspaper accounts of the ruling whether this only applies to tenants who remain in their lodgings, or to the actual property. Assuming landlords can raise rents for new tenants, enterprising landlords will probably be closing their buildings for ‘renovations,’ which will take about 5 seconds, then re-opening at market rates, which are much higher than what current tenants are paying. Enterprising tenants will be moving out and sub-leasing at market rates. (Advice to sub-leasing tenants: tip the watchman so he won't tip off the landlord.)



Inability to raise rents is one concern for property investors.

Another concern is that a lot of properties are due for completion in 2007. Which doesn’t mean a lot in this part of the world, but some of those properties will eventually be completed. The local newspapers say the total due for completion in 2007 exceeds demand, but, again, not all those scheduled for completion will actually be completed.

A third concern for investors is that the price of oil has dropped by more than 30%. With oil at $78, and with the US freezing the Western-based assets of some people from this part of the world, a lot of oil money was pouring into Dubai property, which, for many investors, was safer than the alternatives. Now those investors have 30% less money that needs to be invested in places like Dubai.

2 Comments:

Blogger CG said...

Building materials and general maintenance costs have zoomed up through the roof. Believe it or not, Landlords are forced to increase rents in accordance with the market.

8:46 pm  
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6:45 pm  

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