What Abu Dhabi’s Rent Freeze Means for Landlords and New Leases

**Tim Elliott** (0:00)
It's the Morning Drive, welcome. This is Mira Business FM, Abu Dhabi's rent freeze policies continuing to shape conversations across the property market. Landlords and tenants are having to adjust to a new landscape. Now, we don't have a timeline on how long this new directive will be in effect. It's a temporary measure, but it's here now. So joining us, Ben Crompton is managing partner at Crompton Partners. We're going to talk renewals and new lease agreements and hopefully break down what the policy means for the market going forwards. Ben, good to have you on. Thanks for joining us.

**Ben Crompton** (0:36)
Thank you for having me. Good to be here.

**Tim Elliott** (0:38)
You're very welcome. So landlords want to maximize yields. Tenants want price stability. The rent freeze kind of sits in the middle.
Any tensions at the moment on the ground as leases are getting renewed? How are things?

**Ben Crompton** (0:56)
Yeah, I mean, the action that's been taken in freezing rents is obviously very pro-tenant, I would say, more than the previous situation. The previous situation was a 5% rent cap. And now, because of the hardship the tenants have been facing with rents going up an awful lot, 50% over the last three years in some cases. So the government has acted obviously due to regional uncertainty, some people are suffering with job insecurity, some people have had wage cuts, but with these rent rises, so they've acted to freeze these rents. And obviously, it's early days yet, but yeah, there's definitely going to be some tension between landlords who want to raise rent, even where they're thinking that they want to raise it to market price, where they think it should be, and tenants who now rightly say, well, the rent's frozen, I'm just going to pay the rent that I was paying last year.

**Tim Elliott** (1:49)
Well, market price and where landlords think prices should be don't always correlate, I suppose. What's been the response so far? And I get that it's early days, but what are landlords telling you?

**Ben Crompton** (2:05)
So landlords probably fall into two categories. One category where the landlords were looking at a 5% increase this year, and then they're probably going to take the view, well, 5% is not too much, I'm happy to renew what it was last year. And then there's a second category of landlords who believe that their rent is well below market price, and that if they were able to rent it at market price, they'd get a significant uplift. And those landlords are probably going to be the ones who will be angling more to find workarounds for this, because the way it's being restricted is through the Tau Thig system, it's our version of Hidari. So now when you generate a new Tau Thig, a new Hidari, you can only generate it at the rental amount that it was last rented at.
So that stops landlords raising the rent mechanically, if you say. So landlords can't generate a rent contract for more, so they're probably, the ones who feel particularly aggrieved might be looking at workarounds for it.

**Tim Elliott** (3:07)
Are you seeing more discussions renegotiating terms between landlords and tenants?

**Ben Crompton** (3:15)
There's a lot of discussions, and I think tenants are feeling very empowered by this law, and rightly so.
Landlords are probably trying to do that, and we've definitely seen the case where some landlords are perhaps trying to renew for smaller time periods, say like a three month renewal or six month renewal, because they believe that, and it's been expressed that this rent freeze is temporary. And tenants probably sticking to their guns and saying, actually, you know, this is it. You know, the law is clear. You know, I have a right to this rent freeze, and you know, I'm going to take advantage of it.

**Tim Elliott** (3:53)
Let's look at the potential impact, Ben. Under a strict rent cap policy, an existing tenant has a pretty big incentive, financial incentive to stay put, even if their space requirements change or whatever.
Conversely, landlords feel that they're missing out on the, you know, potentially missing out on the broader property boom because they can't adjust legacy rents, you know, to match the, who can match the speed of the markets here in the UAE. How do you see this affecting overall inventory and market liquidity in prime communities in the capital?

**Ben Crompton** (4:32)
Yeah, I mean, it'll be very interesting to see, you know, what happens because, you know, we're probably going to have some units coming onto the market that have been, you know, let's say rented, you know, below market rent, and they're going to be advertised below market rent. So you'll see people paying market rent, who will actually say, well, hold on, that's a below market rent, because it can only be rented at the, you know, the amount that it was last rented at. Maybe I'm going to move into that unit. We might see some landlords, you know, if they are going to get below market rent, take those units off the market and say, actually, I'm going to wait, because I don't want to lock myself in for a year, at, you know, this lower rent. I'm going to wait, you know, see what happens next, because it has been expressed to be a temporary freeze. And, you know, and hopefully, you know, the next iteration of this, I'll be able to release it at market rent. So, yeah, we might see a lot of, I mean, we'll definitely see a lot of tenants staying put, but there might also be real opportunities for tenants paying, who are paying close to market rent now, to actually move to pay, you know, significantly below market rent, you know, take advantage of rent freeze in that way.