Demand pressure forces Dubai government to introduce Index

High demand continues in one of the property hotspots of the world. The increasing demand has had side effects that have finally pushed the Dubai government to institute regulatory measures.

Dubai has become one of the most popular places in the world for foreign property investment. The tiny emirate is one of the members of the UAE nation, and there have been a number of pull factors driving people to invest in property in the Dubai market. The combination of easier foreign investment, an exploding Dubai economy and quickly expanding opportunities for success have all been contributing factors, but the influx of foreign money into Dubai has had some negative side effects as well.

One of those side effects is the vastly greater demand for property than the supply that is available in the area can handle. Dubai has arguably paid more attention to making high end properties to build itself into a world power, and has, therefore, let supply drag behind to the point where rental rates have gone through the roof.

Each year the Dubai government is forced to lower the cap on increasing rental rates because of the high demand that is continuing to drive them up each year. In 2006, the rental cap was 15% from the previous year and it has gone down to 7% in 2007 and finally 5% in 2008.

Apparently, that has not done enough, however, because the Dubai government is now going to introduce a government-mandated index which will specifically set ranges for rent prices in different areas around the city. Rents for every property within the city will have to fall in between the range that the government defines, making this the heaviest piece of government regulation to fall on the Dubai property market.

The main point of the regulation, according to the UAE Central Bank, is to attempt to put controls on inflation. Dubai’s 9.3% inflation rate in 2007 is the highest it has been at since 1988.