“The real estate market in Abu Dhabi has changed a lot since the financial crisis,” Ali Saeed bin Sulayem, chief executive of Hydra Properties, told OBG.
Prior to the global financial crisis affecting the UAE’s economy, the emirate’s nascent real estate sector was buoyant, as a perennial shortage of units pushed up property and rental prices. In 2006, four years after the property boom in neighbouring Dubai, Abu Dhabi opened up its market to foreign investors, launching a slew of new development projects, such as Al Reem Island and Al Raha Beach development. Although the majority of investors have yet to receive the keys to their homes, the result of opening up the market was a vertiginous rise in the value of some properties.
Many observers, both local and foreign, dismissed talk of the fractured global financial system affecting the capital. In late 2008, however, it became all too apparent that the emirate’s housing market would not go unscathed.
Residential values and rent fell throughout 2009 but the rate of decrease slowed in the second half of the year. According to CB Richard Ellis, rent in the final quarter of 2009 was still declining but at a more stable rate than at any point during the previous year. With a standard unit attracting $24,500-$35,392 per year, one-bedroom apartments were the least impacted, registering just a 4% drop compared to the third quarter. Other segments, however, fell harder.
Cheaper living expenses for tenants in the capital is welcome news for most. In recent years, high accommodation costs and inflation were the bane of many residents’ finances. In fact, the declining rents have helped to reduce the inflation figure, which registered a mere 0.78% in 2009, following previous rates of 14.8% and 10.7% for 2008 and 2007, respectively.
According to Abubaker Al Khouri, managing director of Sorouh Real Estate, lower rents in neighbouring emirates are one reason why accommodation prices have decreased. “Dubai has affected Abu Dhabi because a considerable proportion of the population has moved there to benefit from lower rents. Its one reason why rent here in the capital has come down a bit,” he told OBG.
Another factor is the new economic reality to which many people are growing accustomed. Employment market conditions have changed substantially, which has been reflected in housing allowances companies offer to their staff.
John Bullough, chief executive of Aldar Properties, told OBG, “Landlords are becoming more flexible in the prices they are quoting in reaction to the macroeconomic situation and employers are seeing that they don’t have to fund residential allowances to such a high level.”
Bin Sulayem, however, said this would not last long as more people are going to be attracted to the capital. “The government has a lot of projects that will be issued in 2010, which will impact on the number of people coming to Abu Dhabi and the interest in the emirate.”
Al Khouri has echoed this sentiment. “Government projects such as the new railway, Khalifa Port and Industrial Zone, investment in petrochemicals, Saadiyat Island and the large infrastructure projects are all going ahead. These will act as a strong stimulus to employment and the economy,” he said.
Abu Dhabi’s economic outlook is very positive, not least due to its “strategic location, prudent government planning, diversification strategy and the basic wealth of the emirate”, according to Bullough.
Nevertheless, liquidity and access to finance still remain tight, which is making work difficult for some developers, sub-developers and contractors.
For prospective homeowners the banking situation is improving, although it still has some way to go. “Interest rates are high at the moment but we are beginning to see them come down,” Philip Ward, the chief executive of Abu Dhabi Finance, told OBG. “Lower rates are part of the equation when it comes to helping the development of the residential real estate market.”
A host of new units due for completion in June, particularly in the high-end segment, such as Sorouh’s Sun and Sky Towers on Al Reem Island, may also be a shot in the arm for the market.
“The closer these projects come to being completed the higher demand for them we’ll witness. This is because many people like to see the physical building before they buy,” Ward said.