Dubai To Cap Rent Hikes As Foreign Firms Get The Jitters Over Costs

by Lorys Charalambous, Tax-News.com, Cyprus

16 November 2005

As soaring rents and other costs prompt businesses in Dubai to consider relocating to cheaper bases, the government in Dubai has stepped in to ensure that property owners cannot increase rents by more than a stipulated level over the next year.

According to a decree issued on Saturday by General Sheikh Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and UAE Minister of Defence, rents in the Emirate cannot be raised by more than 15 per cent until the end of 2006. It has also been reported that the Dubai Rents Committee is prepared to review increases in rent by property owners should residents decide to contest them.

The decision by the Dubai authorities to cap rent hikes comes as the regional press reports that a growing number of foreign businesses in Dubai are complaining of costs escalating to unsustainable levels, driven by rising employee residential rents and mounting fuel prices, which in turn are contributing to rampant inflation in the rapidly growing city.

Annual research by Asteco Asset Management, a regional property firm, has shown that residential rents for one, two and three-bedroom apartments in Dubai had increased by 38 per cent on average in the year to October. The cost of office space in Dubai also went up by 29 per cent on average during the period.

Meanwhile, the National Bank of Dubai has reported in its latest research that UAE consumer price inflation (CPI) could reach between 15 and 20 per cent in 2005, driven by higher rents, which form the single largest constituent of the CPI at 36.1 per cent, and fuel prices.

“Today the most discussed topic among employees is the out- of-control inflation,” Joseph Hanania, Managing-Director for Hewlett-Packard, which provides housing for its 300 UAE-based employees, told Reuters.

He went on to note that: “The increase in rent is becoming a key concern for us and unfortunately it is impacting employees of mid-level and below extensively. It’s not just rent, everything has gone up by significant amount.”

Mr Hanania added that these increasing costs are "eating up many of the operational advantages" of having a presence in Dubai.

Consequently, other companies have begun to question whether the advantages of the Emirate's low tax base are being outweighed by rising costs, and it is reported that some firms are considering whether to outsource some of their costlier operations to other countries, or to move their businesses out of Dubai altogether.

However, not all companies are at panic stations just yet, and UAE officials are keen to point out that all things are relative, with business costs in Dubai still lower than in the established financial centres such as London, New York and Paris.

"This has not become a serious issue as yet,” Hassan Tavakoli, Vice President of Motorola Middle East and Africa was quoted as observing by the Khaleej Times.

“We’re looking to create a dialogue with the UAE authorities to jointly tackle this issue," he added.

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