Lower Oil Prices Seen Cooling Abu Dhabi’s Property Sector

Lower oil prices are likely to cause Abu Dhabi’s residential property sector to stabilise in 2015 following a two-year price boom as sentiment weakens and government spending in some areas slows, industry consultants say.

A slew of new residential units was released in 2009-12, just when demand was hit by the global financial crisis, creating oversupply and sending prices tumbling. The sector then rallied in 2013-14 because of broad economic growth and the United Arab Emirates’ status as a safe haven in the Middle East.

Housing prices across the UAE capital’s freehold markets rose about 24 per cent in 2014 after an increase of 31 per cent in 2013, consultants Cluttons estimate.

But the rental market has been more sluggish, with rents rising two per cent in the first quarter of this year versus the preceding three months, according to a report from CBRE.

“Over the past year average rental growth has been relatively consistent, ranging between 2-3 per cent for each of the past four quarters,” CBRE wrote.

Abu Dhabi has reduced its dependence on oil, but the energy sector still accounts for more than half its gross domestic product, JLL estimates. While UAE authorities have pledged to continue spending on economic development, and have plenty of money to continue doing so despite the oil price plunge, some state spending may become more cautious.

The drop in crude prices has therefore led “to a softening of sentiment and there will be less (state) spending this year than in the last two years,” David Denley, JLL’s regional director, told an industry conference on Tuesday, predicting this would hurt property demand and lead to “mid-cycle stability”.

“It will be relatively flat this year, maybe the year after, and we can then think about growth again,” he said. “We still think there will be growth this year, but in single digits.”

Abu Dhabi has about 244,000 residential units; over the past six to seven years, about 10,000 units have been handed over each year and a further 8,000 units annually will be completed over the next few years, JLL estimates.

“If you talk about the actual schemes that have planning consent, there’s scope for there to be another oversupply situation,” Denley said.

Abu Dhabi’s Urban Planning Council approved 76 projects and master developments covering about 11 million square metres of gross floor area across the emirate during the first quarter, CBRE wrote.

LIVING COSTS

But while the supply of higher-end homes is ample, Abu Dhabi has a shortage of affordable housing, Denley added.

The price spike in 2013-4 has meant “many residents are becoming increasingly concerned over the escalating cost of living, particularly as utility rates are also on the rise,” CBRE said.

Such concerns led Aldar Properties this week to launch Meera, a development of 400 units near the city centre for households with relatively moderate monthly incomes of 20,000-30,000 dirhams ($5,450-8,175).

“Previously we did have products in that category, but were targeting corporations where we built staff accommodation,” Talal al-Dhiyebi, chief development officer at Aldar, Abu Dhabi’s largest developer, told Reuters.

Aldar plans to complete 7,500 new units over four to five years. It has built about 18,000 units, of which it has retained 5,000 to rent out.