Dubai Land Department, from the Gulf News quotes, the new rate into effect on Tuesday amid concerns that demand for property continues to outshine supply, heavy rents in the flourishing Gulf trade and tourism focal point.
The newspaper gave no reason for the reduced cap, but economists say soaring rents threaten to undermine Dubai's strategy of attracting investment and expatriates, as companies begin to consider less costly cities in the Gulf.
EFG-Hermes, Egypt's largest investment bank, predicted in a recent research report that residential property prices would begin to fall in 2009, a year later than initially expected because of a delay in the delivery of construction projects.
The delays will result in a continuing shortage of residential units and prices could rise 10-15pc this year and 5-10pc next year, peaking in the second half, EFG-Hermes said.
The report, released in September, had predicted the rent cap was likely to be reduced to 5pc for next year.
Abu Dhabi, the largest of the UAE' seven members, Sharjah, home to many expatriates who work in Dubai, and smaller emirates have also set rent caps in recent years. Dubai was the first UAE emirate to open its real estate market to foreign investment in 2002, triggering a boom that has driven both property prices and rents higher.