Study reveals 17% rental increase in first quarter of 2008 in Abu Dhabi

Abu Dhabi, capital of the UAE is experiencing real estate boom

According to a research by the Department of Planning and Economy (DPE) in Abu Dhabi, UAE's capital, the rents in the emirate has risen by 17% in the first quarter of 2008 compared to 2007. The study reveals that the soaring rents due to the growing demand of real estate as well as increasing construction costs.

The main reasons for the escalation of the problem is the growing number of commercial units as landlords are converting their residential units into commercial units or hotel apartments in an attempt to escape the 5% rent increase cap. Also, most real estate developers avoid building for the middle and lower segments. They prefer the 20-25% yields generated by the mega developments compared to the 10-15% of leasing revenues from lower-income segments even though they constitute about 85% of the total demand.

The study concluded that the prices of land and building material have increased by more than 100% in past 4 years. The government should address the prevailing demand and supply imbalances in the housing market. DPE suggests setting ceilings for rents according to classified plots based on the location, quality and area.