Dubai: While off-plan launches are now a regular feature in Dubai, developers in Abu Dhabi are still hesitant to take the plunge when it comes to creating new capacity. This has only managed to create further demand pressure on Abu Dhabi’s existing residential stock as well as supply to be delivered shortly.
Lack of sufficient new stock is also having a telling impact on residential rental rates, both within the city and on the growing housing base outside of it.
“There is no question rents have risen at a rate outstripping both inflation and salary increases,” said Simon Townsend, regional business development manager at the consultancy DTZ. “However, the increase in rental stock across existing and new developments and the diverse range of landlords means individual developments can have wide ranging price differentials for the same type and style of unit.
“One of the more significant challenges [that is already there in some instances] is the pressure of having to pay the full annual rent in advance rather than on a traditional monthly basis puts on household incomes.”
With demand for housing very strong there, will developers in Abu Dhabi shed their hesitancy and go ahead with off-plan projects? Or will they need to see a further spike in demand to be convinced? (Some industry sources also point out to the 50 per cent cut-off on mortgages for off-plan properties as a valid reason for developers’ pause.)
The industry is now looking to the upcoming Cityscape Abu Dhabi this month to see if new off-plan launches can once again figure prominently. They point to recent form in Dubai — in October last the Cityscape series in Dubai saw a clear spike in new launches as well as developers bringing forward their plans to do so.
“There is a substantial need for comfortable living that is close to the city… Abu Dhabi is currently experiencing higher demand in certain areas and therefore a natural increase in prices in areas like Raha Beach, Shahama, and Reem Island,” said Mohammad Al Habech, chief commercial officer at Hydra Properties, which this year is marking a return to Cityscape.
“Considering these elements, we think it is the right time for developers to — responsibly — launch new off plan products by attending to end-users and mid- to long-term investors’ needs.
“Investors have recently turned their eyes towards the capital as an investment hub seeing that the Dubai market is competitive and nearly saturated. Investors should be now appreciating the mid-term to long-term hold for ready products and they are more understanding of what market needs are.”
Certain other factors are already in play. Properties developed by Aldar were recently granted freehold status from the earlier long-term leasehold designation. “That’s been a huge plus both for the wider market in Abu Dhabi and Aldar specifically,” said Robin Teh, country head at Chesterton International. “Locations such as Al Raha are benefitting from the switch to freehold… it’s likely Aldar could get busy with off-plan shortly.
“As of now, it’s still Aldar and TDIC (which has been releasing upscale properties on Saadiyat Island) driving the market.
“Elsewhere, prospective developers seem to be mulling their options; we had a few instructions recently to assess vacant plots on Reem Island, but there wasn’t any further movement by the parties to acquire these to develop.”
Any positive vibes emerging out of Cityscape Abu Dhabi 2014 could just be the catalyst Abu Dhabi’s developers and a fast expanding resident base need.
In 2013, residential rentals in Abu Dhabi were up by 16 per cent on average, with the sharpest increases taking place in the fourth quarter. This is based on number crunching by CBRE, which found that one-bedroom units saw the highest rental gains in the fourth quarter of 2013. “The recovery is expected to gather further momentum over the next 12 months, as the impact of the recent rent cap removal is felt in earnest,” said Mat Green, head of research and consultancy — UAE, CBRE M. E. It also highlights the need for developers to get a move on with off-plan launches now that could, if construction schedules allow, ease some of the pressure on housing in the next three to four years. “The rental gap between properties located ‘off-island’ and those at ‘on-island’ locations remains firmly intact, with apartments in off-island locations 44 per cent cheaper than those on the main island,” said Green. “The average annual rental for a two-bedroom apartment unit off-island is now Dh66,500 and compares with Dh115,000 on-island.” Over the next three years, 40,000 residential units are forecast for delivery across the capital with close to 45 per cent to be completed on Reem Island.