Rental increases had become a cause of growing concern over the last year, with some tenants reporting rises of up to 100 per cent. Many also feared that the rising cost of living would adversely affect Dubai's cost competitiveness.

A recent report published by local property services company Astecoshowed that residential rents had increased by 38 per cent on average in the year to October, and the cost of office space had increased by 29 per cent during the same period. 'One would normally prefer the market to determine rents, ' says Steve Brice, Standard Chartered Bank'ssenior economist for the Middle East. 'This is a special case because there is a temporary shortage of properties.'

Looking forward, the current imbalance between supply and demand is expected to narrow as many of the large-scale developments currently under construction are completed. 'A lot of stock is coming on stream, and landlords are starting to realise this, especially landlords with older buildings, because the developers building new properties will want to fill them,' says Andrew Chambers, Asteco's managing director. 'Even if the cap is extended for another year, the effect will be largely inconsequential because by then I expect the market will have corrected itself.'