Reform and broader product offerings support Abu Dhabi's recovering construction sector

 

Although it has become a strong contributor to economic diversification, Abu Dhabi’s real estate sector is being put under pressure by slower growth, brought on by the period of low global oil prices that started in 2014. Public and private sector spending cuts since 2015 have been reflected in capital value, with rental rates declining to their lowest levels since 2013, the year real estate prices began to recover from a speculation-driven market crash following the global financial crisis of 2007-08.

However, the slowdown has masked encouraging developments in the sector, with a series of Abu Dhabi government reforms unveiled in 2015 increasing transparency and tightening bank lending to the sector, with a view to protecting against the emergence of another property bubble. While oversupply continues to be an issue, private developers are becoming more responsive to market demand with regard to product offering, and have begun exploring alternative projects, such as real estate investment trusts (REITs) and joint ventures (JVs).

Flexible payment plans are another means of attracting buyers and renters in a more difficult market. “Flexibility in payment terms is critical to gain customer loyalty and accelerate sales. Developers are crafting customised plans for customers to adjust their cash flow,” Khaldoun Mohammed Saleh, CEO of Wahat Al Zaweya, told OBG. These all constitute encouraging signs and an indication that the market is heading towards maturity.

Oversight & Planning

The local government’s strategy for urban development in Abu Dhabi City, the capital of the UAE, is set out in the urban structure framework design, Plan Capital 2030. First issued in 2007 and subsequently updated in 2015, the longterm urban development agenda provides a blueprint for two complementary centres in the capital: Zayed City and the central business district that is already well established on Abu Dhabi Island. The development emphasises citizen interaction, including the creation of pedestrian and public spaces, as well as public transit infrastructure. In February 2018 local government authorities announced that the Abu Dhabi Urban Planning Council (UPC), the body responsible for overseeing the implementation of Plan Capital 2030, would have its functions absorbed into the new Department of Urban Planning and Municipalities (DPM). The DPM’s mandate encompasses urban strategy, municipal services, licensing and project approval. Speaking to OBG, Yousef Al Ali, director at the DPM’s investment office, described the integration of these services as embodying a more needs-based approach to urban planning. “By having these services under one roof, the DPM has integrated the transformative phase of urban growth management with the responsive phase of community service provision,” he told OBG.

According to Plan Capital 2030, Zayed City, located on the mainland between Abu Dhabi International Airport and the suburban Mohammed bin Zayed City, will serve as the new seat of Abu Dhabi’s government. The capital business district, meanwhile, will have its heart in the financial free zone on Al Maryah Island and spread onto the north-eastern corner of Abu Dhabi Island, as well as the islands of Reem and Saadiyat. Both the islands of Saadiyat and Yas are earmarked as focal points of cultural and leisure developments. Meanwhile, the historic city of Abu Dhabi Island will see the Sheikh Zayed Grand Mosque area in the south end transformed into a lower-density residential and business area, while the more developed north end will remain as it is.

Economic Context

Abu Dhabi’s real estate sector has felt the pressures of an economic slowdown, brought on by a period of generally lower oil prices and fiscal conservatism that affected most property segments. The impact of this period was first felt in the beginning of 2016, and by the end of that year the emirate’s GDP had contracted by 6.4%. This period saw public and private entities alike downsize their offices, release personnel, and cut housing and travel budgets. International real estate services company JLL reported that average rents in the emirate fell by around 5% in 2016. Abu Dhabi’s economy returned to growth in late 2017, with GDP expanding by 3.8% over the year and forecast to grow at over 5.3% per year until 2022, according to UK-based analytics firm Oxford Economics. This is partly a reflection of oil price increases throughout much of 2018, but is also due to growth in the non-oil sector, which accounted for an estimated 53% of Abu Dhabi’s GDP as of the first quarter of 2018, according to UK-based property consultancy Knight Frank.

The launch of new urban developments, such as the 8000-ha Al Riyadh City housing development and a $13.5bn stimulus package announced in September 2018 are signs that the Abu Dhabi government spending cuts could be winding up. Meanwhile, the announcement by Abu Dhabi National Oil Company (ADNOC) in November 2017 that it will spend Dh400bn ($109.9bn) on increasing production over the next five years is a sign that confidence is returning to the oil sector, which in turn would have positive knock-on effects for the real estate sector.

Scope & Performance

According to preliminary estimates from the “Statistical Yearbook of Abu Dhabi 2018”, published by the Statistics Centre - Abu Dhabi (SCAD), the value of sector output in 2017 was Dh31.8bn ($8.66bn), down marginally from Dh32.1bn ($8.74bn) in 2016, and equivalent to 5.4% of total GDP for the year. From an investment perspective, however, real estate is one of Abu Dhabi’s most important sectors. In 2017 it accounted for over Dh29.9bn ($8.1bn) – or 27.7% – of the emirate’s total Dh108bn ($29.4bn) in foreign direct investment (FDI) inflows, according to SCAD, representing a healthy increase on the Dh27.9bn ($7.6bn) seen in 2016.

Real estate is also the second-largest sector in the emirate in terms of gross fixed capital formation, behind only the minerals industry. Preliminary figures from SCAD for 2017 suggest that Dh39bn ($10.6bn) was invested in fixed real estate assets that year. Furthermore, the sector employs approximately 1% of the emirate’s total working population.

Saadiyat Island

Abu Dhabi’s drive to become a regional tourism and knowledge centre has seen dozens of projects built on its flagship development Saadiyat Island. Overseen by the asset management and development vehicle of the Tourism Development & Investment Company (TDIC), development on the island is centred on three areas: the cultural, the marina and the beach districts.

In November 2017 the cultural district celebrated the opening of the long-awaited Louvre Abu Dhabi, designed by the Pritzker Architecture Prize-winning architect Jean Nouvel. The attraction featured in Time magazine’s “World’s Greatest Places 2018”, a compilation of 100 destinations. The museum is the second flagship institution to launch on the island following the emirate’s branch of New York University, which open its doors in the marina district in 2014. Two further museums, Guggenheim Abu Dhabi and Zayed National Museum, are also planned for the cultural district. The beach district, for its part, is home to a growing list of high-end hotels, including the Park Hyatt Abu Dhabi Hotel and Villas, Saadiyat Rotana, Jumeirah Saadiyat, Rixos Saadiyat and the St Regis Saadiyat Island Resort.

Saadiyat Island is also the site of a number of luxury residential neighbourhoods. At present, residents on the island are predominantly based at the Saadiyat Beach Villas and Saadiyat Beach Residences. However, new housing developments are due to open in the near future, with the handover of several projects due before 2019. These include two Aldar developments, purchased from TDIC, located in the cultural district: the Dh1.2bn ($326.6m) Mamsha Al Saadiyat, a 1.4-km beachfront mixed-use project featuring 5000 sq metres of retail space and nine low-rise residential buildings with 461 units; and the Dh370m ($100.7m) Jawaher Saadiyat villa complex, a gated community of 83 four-bedroom houses and four- to six-bedroom villas, as well as a community centre, gym and playground.

In the marina district, Abu Dhabi-based property developer Bloom Holding plans to launch the Soho Square and Park View residential developments in early 2019, bringing a combined 536 residential units and 188 hotel apartments on-line. The marina area is eventually expected to house about 29,000 residents across more than 4300 mid-range homes.

March 2018 saw Abu Dhabi’s largest real estate developer, Aldar Properties, announce the Saadiyat Grove residential project as part of a Dh30bn ($8.1bn) JV with the Dubai-based developer Emaar Properties (see analysis). Two months later, Aldar acquired Dh3.7bn ($1bn) in assets from TDIC in one of the largest real estate transactions in the country’s history.

Yas Island

The plan to develop Yas Island into a premier entertainment hub and residential community was first unveiled in 2006. The island has since witnessed the completion of several high-profile entertainment developments, including a Formula One race track, the Ferrari World theme park and the 235,000-sq-metre Yas Mall. CLYMB, an entertainment facility being built next to Yas Mall, will feature the world’s widest flight chamber and tallest indoor climbing wall. Aldar Properties sold some of its assets in 2010 and 2011, including the race track and Ferrari World, to the Abu Dhabi government, which created holding company Miral Asset Management to promote and develop these projects, among others. Nonetheless, Aldar Properties remains at the forefront of residential developments on the island. In December 2017 Aldar began handing over units in its Ansam development overlooking Yas Links Golf Club, and in June 2018 the firm began transferring units to owners in West Yas, a Dh3.2bn ($871m) residential development of more than 1000 four- and five-bedroom villas. In April 2018 Aldar Properties awarded the main contract worth Dh1.3bn ($353.9m) for its Water’s Edge development to the UAE construction firm Trojan General Contracting. The Dh2.4bn ($653.3m) residential community will include 13 midrange apartment buildings with private courtyards, as well as exercise and recreational facilities, retail areas, restaurants and cafes.

Miral is working to bring further high-profile entertainment parks to Yas. The $1bn Warner Bros. theme park opened in July 2018 and a SeaWorld marine life park is scheduled to follow in 2022. Miral is also behind the Yas Bay master development, a $3.2bn mixed-use residential and entertainment district on the southern tip of the island. Miral awarded the main contract for the first phase of the waterside project –to include an 18,000-seat arena, a plaza, and 70 retail and catering spaces – to Dutch contractor BAM International in December 2017. The plan focuses on three distinct areas: Yas Bay, a public waterfront and entertainment district; the Media Zone, which will include the twofour54 campus; and the Residences at Yas Bay, which has yet to be tendered.

Reem Island

With residential tenants drawn to its modern, mid-range apartments, the 6.5m-sq-metre Reem Island has proven increasingly popular. In June 2015 the UPC – the entity formerly in charge of approvals – sanctioned a revised master plan for Reem, drawn up and supported by the island’s three master developers, which allocated each their own development area. Abu Dhabi-based real estate firm Tamouh Investments accounts for 60% of the island’s metreage, with Reem Investments and Aldar Properties each having 20%. The programme allows the island to eventually home over 200,000 residents, and includes plans for 10,000 hotel and serviced apartment rooms, 1.4m sq metres of office space and over 850,000 sq metres of retail area. Schools, day care facilities, hospitals and clinics, and public green spaces are also woven into the development scheme.

The 12 months to April 2018 saw a wave of activity on the island from a number of property groups. In its development area, Tamouh Investments completed the 924-unit Horizon Towers project, while local private developer Mismak Properties handed over its three-tower Solaris Towers development. This consists of the 396-unit Sigma Towers I and II, and the business and residential Omega Tower project. The area also saw the delivery of the 56-storey mixed-use Leaf Tower, developed by UAE-based 3AM Properties Investment Company. In late 2017 Al Farwaniya Property Developments broke ground on the long-anticipated Reem Mall, which, with more than 250,000 sq metres of gross leasable area (GLA), will be one of the largest malls in Abu Dhabi upon completion, scheduled for 2020. The $1.2bn shopping centre will offer 450 retail brands, as well as entertainment and dining options.

In Aldar’s master-planned community on Reem Island, several mid-market residential properties are under way. Meera is on track to be handed over in 2019, while work is also progressing on The Bridges, a 1272-unit, six-building development that is being constructed at a cost of Dh1.3bn ($353.9m). Off-plan sales have also been launched for the Reflection Towers project, a Dh440m ($119.8m), 374-apartment boutique residential development slated for completion in 2021. Recently completed works include the master-planned area that encompasses the 2. 4-km Reem Island Canal, and Reem Central Park. The Dh250m ($68.1m) park includes a retail centre, and various recreation and food and beverage outlets.

IMKAN, the research-based property development arm of private investment house Abu Dhabi Capital Group, are the developers behind the Makers District project. Also located on Reem Island Abu Dhabi, the Dh7.4bn ($2bn) Makers District project will consist of a creative hub called The–Artery, a double helix parking structure and event space; Pixel, a seven-tower mixed-use development with 525 apartments, incorporating a 12,000-sq-metre public realm; a boutique hotel; and retail and office spaces. “Our research shows that successful real estate projects focus on catering to the needs of tenants,” Walid El Hindi, CEO of IMKAN, told OBG. “Our 18-ha Makers District community is built on the principle of place-making, and is geared towards investors and end-users of a millennial mindset. We designed this development to feature elements that are priorities for this particular group, such as the inclusion of a vibrant pedestrianised plaza, healthy lifestyle offerings, digital connectivity and, most importantly, abundant opportunities for tenants to enrich, collaborate and engage.”

Al Maryah Island

Development of Al Maryah Island has become a top priority for real estate and construction. As an international financial free zone and a mixed-use real estate development, the island is expected to become a major financial and business district, supported by retail development Al Maryah Central, and high-end residential and commercial projects. Development on the 1.14m-sq-metre island is being overseen by Mubadala Real Estate & Infrastructure (MREI), the real estate division of Mubadala Investment Company. The three-phase development of the island began in 2008, with phase one seeing extensive preparation and infrastructure construction, as well as the building of two hotels, Abu Dhabi Global Market (ADGM) Square and its four commercial towers, and The Galleria luxury shopping mall, all of which are concentrated on the south-western half of the island. Phases two and three will see construction expand to the south-east and north, respectively, including further commercial and residential properties. In an April 2018 interview with Abu Dhabi-based newspaper The National, MREI’s executive director, Ali Al Mheiri, stated that 60% of planned projects on the island were either complete or under construction. Following the completion of works, MREI hopes that the island will have capacity for over 30,000 residents and 75,000 workers.

Meanwhile, late 2018 should see the handover of the first phase of the luxury residential development Al Maryah Plaza, according to a press release by Taiwanese developer Farglory. Launched in 2010, work on the development was put on hold in 2015 but recommenced in 2016 after Farglory modified its original plans to make the units more affordable.

This comes ahead of the opening of the Al Maryah Central mall, which looks set to take place in mid-2019 after several delays. Having received its construction completion certificate in September 2018, retailers and restaurants will soon begin to move into their premises ahead of the revised opening date in August 2019. Al Maryah Central will be connected by an air-conditioned passageway to The Galleria shopping mall, and together they will add over 260,000 sq metres of retail space to Maryah Island. Additionally, the complex will house a luxury hotel, serviced apartments and high-end private residences in two 37,000-sq-metre residential towers.

Residential

In the middle of 2018 Abu Dhabi’s residential stock stood at approximately 255,000 units, according to “The Abu Dhabi Real Estate Market” report by JLL. After a relatively quiet 2017, which saw the delivery of 3750 units, some 4150 apartments and 670 villas entered the market in the year to October 2018, according to real estate firm Asteco. Particularly significant handovers in 2018 were the 396-unit Leaf Tower on Reem Island, Aldar’s 576-unit Ansam development on Yas Island, and local real estate firm Aabar Properties’ 430-unit Lamar Residence on Al Raha Beach.

New supply and slow economic growth resulted in citywide capital value and rent drops in the first half of 2018. According to JLL, apartment and villa sale prices declined by a respective 9% and 19% year-on-year (y-o-y) to around Dh11,000 ($2990) per sq metre, while apartment rents fell 9% y-o-y to an average of Dh130,000 ($35,400) per year.

In the rental market, high-end properties were hit particularly hard as demand shifted towards mid-market properties. Apartments located on Al Raha Beach, for example, saw their rental prices drop by 27.4% between April 2017 and April 2018. Rental yields nevertheless remained strong, with annual returns on investment of over 7% at Al Reef, Al Reem, Al Ghadeer, Al Raha Gardens and Al Raha Beach residential communities, according to a January 2018 report by local online property portal Bayut.com.

The sales market was carried by off-plan sales, with the secondary sales market seeing little activity. “Off-plan payment options are becoming more flexible, with some developers accepting as much as 80% on handover,” Mai Hassan, manager at JLL, told OBG. “When combined with mortgages, this is considerably more attractive than buying upfront in a sliding market.” Furthermore, a large proportion of recently launched off-plan developments are offering mid-market properties, which are more in line with current demand. There are, however, signs that prices in some pockets are stabilising. For example, the price of apartments at Saadiyat Beach remained flat across the first three quarters of 2018 at between Dh1350 ($367) and Dh1500 ($408) per sq foot. The bottoming out of such pockets, combined with a return to economic growth, could begin to draw buyers back into the market.

Overall, however, the market is expected to soften further into 2019, as significant new stock enters the portfolio of offerings. Asteco estimates that 3100 units will come on-line in the final three months of 2018, as 580 villas open in Hydra Village in Abu Dhabi and almost 2000 units are handed over on Reem, Yas and Saadiyat islands. With a further 9000 units expected in 2019, it is likely new supply will continue to pose an obstacle to growth in the year ahead, despite the improved economic context.

Affordable Housing

One consequence of the economic slowdown has been a shift in interest towards more affordable housing. Long at a premium in the emirate, the supply of affordable housing doubled between 2014 and 2018 to reach 15% of total supply, with developers drawn to the subsector by stronger demand and higher rental yields.

Aldar has led the field in this respect. In 2017 the property developer launched its mid-market developments The Bridges on Reem Island and Water’s Edge on Yas Island, with phase one of the latter selling out within three days at the Cityscape Global Conference, which took place in September 2017.

Continuing its foray into affordable housing, Aldar launched the first tranche of off-plan sales at its newly announced, sustainability-focused Alghadeer development at the Cityscape Abu Dhabi event in April 2018. With a gross development value of Dh10bn ($2.7bn), the residential-led, mixed-use project is located next to Al Maktoum International Airport, and is scheduled for completion in 2021.

November 2018 saw the main construction contract, worth $91.2m, going to local firm Al Rakha Contracting and General Transport. “For any real estate project to be successful, the developer needs to understand what the market needs, particularly in a depressed market environment,” Mounir Haidar, managing director at Lead Development, told OBG. “Housing trends are changing in the UAE, with family sizes declining and demand for smaller houses rising. Likewise, there is a growing need to make real estate products appealing to a younger demographic.”

Although the trend has been in large part demanddriven, the authorities have recognised the need for more affordable housing. Started under the remit of the UPC in 2016, the DPM continues to encourage developers to apply the 20% affordable housing rule as a total of all units in new master plans. Similarly, in August 2017 the Abu Dhabi municipality launched an initiative to encourage landlords to construct or convert buildings into low-cost accommodation for families and individuals earning between Dh2000 ($540) and Dh6000 ($1630) per month, with minimum floor areas specified.

Social Housing

The development of housing programmes and formulation of housing legislation in the emirate falls under the jurisdiction of Abu Dhabi Housing Authority (ADHA). In line with the government’s current framework, ADHA develops Emirati housing projects, programmes and lending products, with citizens benefitting from housing grants, as well as low- or zero-interest loans for home purchase, construction and renovation.

Under ADHA’s home-purchase loans programme, for example, it is possible to obtain facilities of between Dh450,000 ($122,000) and Dh2m ($544,000) for ready-built homes. Loans are repaid in monthly or flexible instalments as determined by the authority, with a maximum tenor of 25 years and a two-year grace repayment period. A point-based ranking system that takes into account the applicant’s age, marital status, family size and income ensures that those citizens in greatest need of assistance are prioritised. According to ADHA figures, loans totalling Dh4.3bn ($1.2bn) were awarded to some 2500 individuals in the 12 months to April 2018. In November 2017 the Abu Dhabi government announced that loans would be extended to a wider range of beneficiaries, including other UAE citizens working in Abu Dhabi and single women.

Office Space

Abu Dhabi’s office market continued to feel the effects of spending cuts and corporate consolidations throughout 2017. The emirate witnessed significant y-o-y rental rate drops, as landlords started granting greater concessions to retain existing tenants and attract new ones. According to Knight Frank, this trend is expected to continue with new supply entering the market and limited demand from government organisations. However, despite the short-term outlook, several positive trends have been forecast. The most notable among these is a slowing of price reductions in the prime office segment, with rentals down a more modest 1.6% y-o-y in the first quarter of 2018 and no new supply in the pipeline. Knight Frank also predicted that a broader slowdown in new supply from 2019 onwards would provide a floor to grade-A rents.

These forecasts appear to be holding true. Asteco’s third quarter 2018 report showed that prime rental rates had remained stable in the year to October 2018, while fitted grade-A rates had also remained flat in the third quarter, despite a y-o-y drop of 4%. “Due to the oil price slump, the oil and gas sector has contracted, with many companies reducing their office space requirements as they reduced their workforce,” El Fatih Said, CEO of Abu Dhabi Business Hub, told OBG. “However, lower oil prices have led to the growth of other non-oil sectors that are in turn driving demand for office space.”

Likewise, the existence of free zones can lead to pockets of opportunity despite overall market sentiment. One such area is the ADGM financial free zone on Al Maryah Island, where Knight Frank’s head of commercial real estate, Matthew Dadd, has seen a strong take-up. “With existing amenities such as the Four Seasons and Rosewood hotels, The Galleria shopping mall and the soon-to-be-complete Al Maryah Central mall, there is enough critical mass to create further momentum on the island,” he told OBG.

With regard to new stock, the first half of 2018 welcomed the delivery of 150,000 sq metres of office space, including the Omega Towers project, Leaf Tower and Wafra Commercial Building on Reem Island. This brought total GLA in the emirate to approximately 3.7m sq metres. JLL estimates that 39,000 sq metres will be added during the second half of 2018, as the effects of the economic slowdown are reflected in fewer completions, with 50,000 sq metres estimated for the entirety of 2019. This should help put upward pressure on rental prices in the medium term, particularly as public and private sector spending is picking up again.

Retail 

Abu Dhabi’s retail real estate supply remained steady in 2017 and the first half of 2018, at approximately 2.6m sq metres of GLA, and no major additions were expected during the remainder of the year. Despite the lack of new supply, JLL reported that vacancy rates rose from 2% in the second quarter of 2017 to 15% in the same period of 2018, while prime rental rates dropped by 5%.

JLL attributes the retail segment’s performance to a confluence of several factors, including reduced disposable income among Abu Dhabi residents, a growing e-commerce sector and reduced tourist expenditure resulting from a stronger US dollar. Meanwhile, the impending completion of several major shopping centres – including Al Maryah Central and Reem Mall – has put significant downward pressure on rental rates. These factors are pushing mall operators to offer new incentives to tenants, among them early break clauses, rental rebates and rent-free periods, as they reposition their stock in the face of growing competition.

Hospitality

Abu Dhabi saw the addition of around 600 new hotel rooms in 2017, down from 1000 new keys in 2016. However, this relative lull in new stock comes ahead of significant additions in both 2018 and 2019. According to JLL, the first half of 2018 saw the delivery of 600 keys, including the 428-room Grand Hyatt Abu Dhabi, which had its soft opening in June. The firm expects another 500 rooms to be opened before the end of the year, with a further 2300 set to be completed in 2019. This would bring the capital’s supply to a total of around 25,200 rooms, compared to 21,800 at the beginning of 2018.

These new rooms are expected to put pressure on average daily rates, which dipped from $122 to $114 between May 2017 and May 2018, even as occupancy rates jumped from 74% to 76% over the same period. This dip can in large part be attributed to the economic climate. “As Abu Dhabi’s hospitality sector has traditionally been more corporate-led, it has also been hit by the economic climate as companies downsize their travel and events budgets,” JLL’s Hassan told OBG. Notwithstanding this, the Abu Dhabi government’s concerted efforts to grow the emirate’s status as a tourism destination, exemplified by developments on Saadiyat and Yas Islands, bode well for hospitality. With the existing market and pipeline dominated by high-end hotels, new opportunities will exist in the mid-market segment, particularly as visitor numbers from lower-income economies in South-east Asia increase.

Tax Situation

The introduction of the 5% value-added tax (VAT) in January 2018 will continue to impact different subsectors in the UAE real estate market, although the extent of that impact will vary. The UAE government decided to entirely exempt residential secondary sales and rentals from the tax, while also allowing developers to recover VAT costs on new residential builds sold within three years of their completion. However, the exemption does not extend to associated property services, such as agents’ fees, cleaning and maintenance, or utilities, meaning that residential consumers are likely see their overall housing expenditure increase.

The tax will also apply to all commercial property sales and leases, as well as to those in the hospitality sector. This will add to existing pressure on retail, which has also been affected by VAT’s knock-on impact on disposable income. When it comes to professional real estate, Knight Frank has not observed a significant impact on Abu Dhabi’s office rentals market. Speaking to OBG, Dadd explained that “the softening market has in fact offered companies an opportunity to improve and consolidate their office accommodation, with the 5% VAT factored into the total real estate costs of relocation”.

Financing

Although the slowdown in demand has hit traditional real estate financing, the 2015 launch of the ADGM financial free zone on Al Maryah Island has opened up novel platforms for real estate investment products. On a regional level, REITs have witnessed significant growth since a number of countries, including Saudi Arabia and Bahrain, introduced legislative framework to accommodate such products in 2017. While REITs are generally driven by tax-saving considerations that are largely irrelevant in the lowtax environment of the GCC, recent bearish market conditions have made REITs an attractive source of liquidity to developers faced with stringent bank lending terms. As for investors, the funds offer an opportunity to obtain assets in an income-generating and diversified real estate portfolio at a potentially lower price than acquiring the assets outright, and without the risk of ownership or financing.

The first two REITs registered at the ADGM, the Residential REIT and the Logistics REIT, were announced by the Dubai-based firm Equitativa in early 2017. The company plans to list the former, which has assets of Dh1.3bn ($353.9m) as of the end of 2018, though at the time of writing no official news had been announced. Global investment management firm Abu Dhabi Financial Group also has plans to list its sharia-compliant Etihad REIT, which was announced in April 2017 and consists of mixed-use assets with a total value of over $500m.

For personal lending, the Central Bank of the UAE’s mortgage regulations remain reasonably conservative. For their first homes, UAE citizens and non-citizens are able to obtain loans of up to a 80% and 75%, respectively, of the property’s value. Mortgages are not available for those who earn less than Dh10,000 ($2700) per month. Although these regulations have a slight muting effect on the sales market, industry stakeholders commented to OBG that the federal government is keenly aware of the risks of creating a bank-inflated real estate bubble. Meanwhile, transparency-boosting legal reforms, such as the 2015 real estate law, which clarified default procedures and introduced protections for off-plan buyers, mean that a strong regulatory framework could start to be felt as the market recovers.

Outlook

While the market continued to face certain challenges in 2018, mid-term prospects for the sector are generally bright. Increased public sector spending should trickle down into the real estate market, while greater caution among private developers with regard to new developments could lead to a narrower project pipeline. At the same time, a stronger regulatory framework that has governed the sector since the reforms of 2015 and 2016 will boost transparency and help underpin sustainable long-term growth. “The economic stimulus package being implemented by the government of Abu Dhabi will enhance the stability of the real estate market in the emirate,” Sameh Muhtadi, CEO of Bloom Holding, told OBG. “As a long-term investment, real estate remains attractive across the UAE. However, developers should still work to diversify their offerings and expand their reach to engage with a wider market to withstand the industry’s current challenges.”

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The Report: Abu Dhabi 2019

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