Abu Dhabi's New Rental Index: Impact on Rents and Property Market

Abu Dhabi rents may increase by up to 30%.

Landlords in Abu Dhabi are adjusting rents following the launch of the UAE capital's first official rental index. According to industry experts, new tenants may see rent increases of up to 30% in areas where current rates are below the market average due to a shortage of available properties and high demand. This shift could also influence those looking to buy property in Dubai as the market dynamics in the UAE evolve.

However, the new rental index can also help tenants negotiate more favorable rental terms in areas where current rents are higher than the index figures.

The Abu Dhabi Real Estate Centre (ADREC) launched the index this week, covering the Dhafra, Abu Dhabi, and Al Ain regions. It allows property buyers and tenants to check indicative rental values for housing units based on location and the number of bedrooms. This development, along with the rise of new launch projects in Dubai, signifies a growing trend toward market transparency and fairness.

In July, the Abu Dhabi rental market continued to show strong activity, especially in upscale apartment and villa areas. Real estate consultancyInchbrick Realty reported modest increases in average apartment rents, with a quarterly rise of 1% and an annual increase of 2%. However, some areas and developments saw more significant growth, with quarterly rent increases of nearly 5% and annual growth of up to 10%.

Tenancy Contract Renewals

For existing tenants, rent increases may not be immediate, as Abu Dhabi has a 5% cap on rent hikes for renewals.

According to the Khaleej Times, some areas in Abu Dhabi are experiencing full occupancy, with certain properties having waiting lists for prospective tenants, particularly in the luxury segment. Popular areas like Saadiyat Island have seen a significant increase in rents over the past year due to high demand. Abu Dhabi's population reached 3.8 million last year, making it the most populous emirate in the UAE.

Prathyusha Gurrapu, head of research and consulting at Cushman and Wakefield Core, mentioned that new leases are usually based on the open market, with rents determined by mutual agreement between landlords and tenants.

Regarding rent increases upon renewal, Law No. 20 of 2006 (Article 16) states that a landlord may increase the rent specified in the contract only once a year and by no more than 5%. The Executive Council can modify this percentage, and tenants can appeal to a committee if the landlord exceeds the allowed increase.

Market Adjustments

Evgeny Ratskevich, CEO of Metropolitan Capital Real Estate, stated that the rental index would help reduce discrepancies between actual rents and fair market values.

"For properties currently priced above or below the market average, adjustments will occur to align with the index. This could mean some rents may decrease if they are currently too high or increase slightly if they are too low, but these changes are expected to be gradual and balanced," Ratskevich said.

Svetlana Politova, COO of Whitewill Abu Dhabi, added that the rental index is likely to stabilize rents, leading to more balanced rental agreements. "In areas where rents were previously over or undervalued, adjustments may occur. However, the index's primary function is to provide accurate data for fair pricing rather than directly influencing rent levels. Thus, any changes in rent will likely be modest and driven by market corrections rather than dramatic shifts," she explained.

Politova noted that areas with significant discrepancies between actual market rents and previously perceived values, such as emerging neighborhoods or those with recent infrastructure developments like Al Reem Island, may see modest changes of up to 5%.

"For instance, undervalued areas could experience rent increases as the index highlights their true market potential, while overvalued areas might see slight decreases to align with accurate data. Saadiyat Island is a potential area where the launch of a residential rental index could lead to price changes, particularly considering the presence of overpriced units," she adds

Stabilisation Of Rents

Ratskevich emphasized that the index would serve as a valuable tool to enhance overall market transparency and fairness. "This transparency helps protect tenants from overpaying and ensures that landlords set competitive and fair rental rates. By providing a standardized measure, the index reduces the potential for unfair practices and promotes equity in rental transactions. Tenants can leverage the index to negotiate more favorable rental terms. With access to accurate market data, they are better equipped to avoid paying excessive amounts," he said.

He also noted that the index benefits landlords by allowing them to align their rental rates with current market conditions. "This helps them remain competitive and optimize their rental income while mitigating the risk of setting prices that are too high or too low," Ratskevich added.

The rental index contributes to a more stable real estate market by curbing sudden and extreme fluctuations in rental rates. This stability creates a more predictable environment for tenants and landlords, reducing uncertainty and fostering a healthier market dynamic, Ratskevich said, adding that the index would provide a clearer picture of potential returns.

Fouad Bekkar, vice president for data and AI at Property Finder, mentioned that the index would enhance transparency and foster trust in the real estate market. "The availability of reliable, easily accessible data will empower tenants and landlords, enabling informed decisions. We believe that such tools are essential in driving the emirate's attractiveness as a leading global destination for real estate investment," he said.

This change in the rental landscape may also impact those looking at new launch projects in Dubai, as the dynamics between Abu Dhabi and Dubai Inchbrick Realtycontinue to evolve. With accurate data and insights, investors can make more informed decisions when considering properties in both emirates.