RESIDENTIAL DEMAND
When it comes to the residential sector, all three market reports highlight that Abu Dhabi’s residential rental values declined in 2009 due to weakening demand. A key factor is that a large section of Abu Dhabi’s workforce was forced to set up home in Dubai due to lack of product in the capital, and sky-high rents. CBRE’s report adds that Dubai offered ‘more affordable rental rates and better quality alternatives’. IB’s report concurs: ‘By early 2009, it became increasingly evident that Dubai was a credible threat and substitute for Abu Dhabi’s residential real estate. [Residents] increasingly opted for accommodation on the south side of Dubai due to a combination of lifestyle and affordability issues.’ Dubai’s competitive offering is also noted in the Asteco report, which says: ‘Although rents in Dubai have, on
average, remained stable over the last quarter, apartments which generally offer superior quality amenities (such as access to a gym, swimming pool and free parking), are still in the region of 20 to 40 percent cheaper than in Abu Dhabi, and thus the number of people working in Abu Dhabi but continuing to live in Dubai remains significant.’ Asteco says that this trend is not expected to change until a ‘significant number of communities of comparable
quality are delivered to the Abu Dhabi rental market’. IB believes that, although there is a supply shortage in the Abu Dhabi metropolitan area, prices and occupancy
levels will continue to fall until prices are properly aligned with value. The report adds: ‘In the very early days of the Abu Dhabi property boom (2006/2007), projects launched
in designated investment areas were priced at between AED550 to 750 (US$150 to 204) per square foot for villas such as Al Reef and Hydra Village, while apartment projects on Reem Island were launched around AED1,200 (US$327) per square foot depending on payment plan. This pricing afforded purchasers fair build quality with reasonable designs and specifications. A number of fundamentally unsound factors – such as speculation from Dubai’s investors, supernormal profit expectations from developers and a selling frenzy – pushed prices up to unaffordable prices.’ IB asserts that ‘the market’s initial pricing of product was correct’ and that Abu Dhabi will need to ‘realign
asking prices with product specifications and offerings if transactional activity is to increase’. Asteco points out that a number of high quality units are due to come online in 2010. ‘In terms of new good
quality supply, there are around 2,000 new apartments due to be ready for lease on the main Abu Dhabi Island during the first half of 2010, with a similar number during the second half. In addition, Marina Square, Sun and Sky Towers and Al Bandar will provide around 6,500 apartments by the end of Q2 2010, with a further 1,286 units due to come online at Al Muneera by the end of 2010.’ Yet CBRE’s report states that these upcoming high-end projects will not address the demand in the low to middle-
income markets. It continues: ‘The clamour for more affordable housing units has become increasingly evident within the current pressing economic climate as a number of companies have implemented salary cuts and/or a deduction in housing benefits. Tenants are also now typically more cautious with their spending as concerns remain over job cuts and as value for money becomes a greater concern of everyday life during the downturn.’ CBRE does however assert that the imminent completions at both the Khalifa A and Al Reef projects will
‘further assist in easing rents, relieving pressure for both residents and occupiers looking to expand their workforce within the emirate’. While the rental market has been subdued, the residential sales market has shown indications of a slight upturn in fortunes during the quarter, with increases in both inquiries and the number of sales transactions, according to CBRE. The report continues: ‘In contrast to the situation one or two years ago, developments nearing completion
now register the strongest rates and demand, as interest in off-plan property has become almost negligible. On average residential apartments on Al Reem Island and Al Raha Beach ranged between AED1,200 to 1,400 (US$327 to US$381) per square foot in Q4 2009. Continued growth in the Abu Dhabi population could see a further recovery in transactional activity, as financial constraints slowly ease and credit facilities become more readily available.’ The increasing availability of
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credit is highlighted in Asteco’s report which states that Abu Dhabi’s mortgage market is ‘more buoyant’ than Dubai’s, with up to 90 percent mortgages available from at least two lenders. It continues: ‘Lenders favour the major developers, but for these they are prepared to lend against under construction properties as well as for the few completed units that are becoming available. Abu Dhabi Finance, ADCB and RAKBank are the most active lenders in the Abu Dhabi market.’
FUTURE FORECASTS
When it comes to the road ahead, CBRE confirms the importance of the government’s role in real estate development. ‘Strong capital flows, particularly from the government sector, will remain a key driver for the economy but the ability of government-led initiatives to reinvigorate the local property market remains a challenge,’ adds the report. IB states that there needs to be greater protection for investors,
who have learned painful lessons from investing in markets with immature legislative and regulatory frameworks. ‘There will need to be considerable investment in a framework to provide clarity in terms of property and ownership rights, particularly in strata-owned buildings. Further, there will need to be greater comfort over zoning and centralised supply control as well as clear procedures, accountability and enforceability of investor and landlords rights, irrespective of the local influence of the counterparty,’ adds the report. CBRE anticipates that transactional volumes will rise gradually,
although there will be ‘no imminent return to the levels reached during H1 2008’. It states that it is crucial for developers to ‘ensure the delivery of residential units on schedule’ and adds: ‘With the changes in the economic climate, the attractiveness of developments is now viewed as strongly correlated to its actual delivery.’ The consultancy points out that the upcoming new supply will
continue to ‘soften rents and increase the negotiating power of tenants’ at least in the short term. Yet the report concludes that the Abu Dhabi market is in a stronger
position than most: ‘Unlike the vast majority of global economies, market fundamentals in Abu Dhabi have remained in relatively healthy shape during the downturn and with optimistic potential for future growth. Indeed, a more positive outlook awaits Abu Dhabi as oil prices look set to remain at relatively high levels and the economy stabilises.’
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5 Central Market 6 Saadiyat Beach Golf Club 7 Gate District, Reem Island 8 Aldar Headquarters
apr-may 2010
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