Abu Dhabi rents rise as experts call for more affordable housing

Average residential rents in Abu Dhabi remained flat quarter-on-quarter in the third quarter of 2015 although they recorded year-on-year increases, the latest report from consultancy JLL showed.

Apartment rents rose about 7 per cent year-on-year in Q3 while villa rentals were up 3 per cent, the report found.

Meanwhile sales prices in the United Arab Emirates capital remained flat both quarter-on-quarter and year-on-year.

International director and head of JLL’s Abu Dhabi office David Dudley said: “Following a two year bull-run where residential price growth at 25 per cent per annum outstripped GDP growth of 3 per cent to 5 per cent per annum, a period of stabilisation is not a bad thing – allowing market dynamics to catch up with sentiment.”

While residential prices have remained stable at Dhs 16,000 per sq m, weaker investor sentiment has significantly reduced transaction volumes, the report found.

“End-user demand growth has softened given the slow down in government spending and job cuts in the oil and gas industry and government sectors,” it said.

“However, as vacancies remain minimal within quality schemes, rents remained stable this quarter at Dhs 163,000 per annum for prime two-bedroom apartments.”

In terms of supply, approximately 700 units were added to the residential stock during Q3 with the delivery of two buildings in Hydra Avenue on Reem Island and the C59 building in Rawdhat.

The total residential stock has remained almost unchanged at around 244,000 units, the report stated.

Meanwhile around 5,000 residential units are scheduled to enter the market by the end of 2015, with the delivery of Amwaj 2 at Al Raha Beach, The Views in Saraya and The Wave, Sea Side Tower and Sigma Towers on Reem Island.

However, some of the developments are likely to experience delays, the report added.

“In Q2 we had reported that the market was at a ‘tipping point’ with its future direction being dependent on the extent to which government maintained domestic spending in the current period of reduced oil prices,” said Dudley.

“During Q3 it has become clear that the level of domestic government spending will reduce in the short-term, as the government remains cautious and re-allocates funds to regional priorities.”

With oil prices down more than 50 per cent compared to June last year, the UAE government plans to cut spending by 4.2 per cent this year, the first such cut in 13 years.

“Job cuts have occurred in the oil and gas and government sectors and some of Abu Dhabi’s mega projects are expected to be delayed further and phased over a longer timeframe. On the positive side however, supply remains under control,” Dudley added.

Further increases to the cost of living – through the removal of utilities and fuel subsidies and the possible introduction of taxes – may further impact future end-user demand, JLL stated.

The company expects single digit rental growth during 2015, following 17 per cent growth in 2013 and 11 per cent in 2014.

While the rental market is linked to end-user demand, the sales market is mainly driven by sentiment.

“Although average prices have been maintained, sentiment has fallen and transaction volumes have reduced. There has also been a tendency for owners to increase leverage and release capital, reflecting increased caution,” the report added.

AFFORDABILITY CONCERNS

To address the growing affordability concerns in the market, the Abu Dhabi Urban Planning Council is planning to introduce new rules for developers.

If approved, the new legislation will require developers to allocate 20 per cent of every new project to “affordable homes”.

Such a move will hugely benefit the market, since the majority of developments have been skewed toward the luxury end, opined Cluttons in a statement.

“It remains to be seen whether these [the new rules] take the form of discounted rental properties, are offered under some sort of rent-to-own scheme or if they are simply sold at a discounted market rate to those who are eligible,” the statement said.

The lack of affordable housing stock has driven tenants and buyers into markets on the peripheries of the city.

“When you consider that an average expat household aspiring to purchase a home has to contend with an average annual rent of Dhs 204,000 against an average household income of Dhs 199,000, the problem of the lack of affordable housing in the UAE capital is incredibly clear, especially when you factor in the 34 per cent increase in average house prices since 2010,” Cluttons explained.

“The introduction of a way in which the emirate can tap into the potential of the expat tenant generation could have huge ramifications for the city’s investment appeal.

“But needless to say, the establishment of a formal private rented asset class will set Abu Dhabi’s market apart from the rest of its regional peers,” it added.