Ask the Agent - How would you assess the performance of the Abu Dhabi real estate sector in 2015?

Ask the Agent - How would you assess the performance of the Abu Dhabi real estate sector in 2015?John Stevens - Managing Director, Asteco

- Can you highlight some upcoming and existing projects in Abu Dhabi where foreign investors can invest?

There were a number of high-profile launches in Q2 2015 on Reem, Yas and Saadiyat Islands including Aldar's West Yas and Mayan on Yas Island, and Tamouh's Horizon Towers, Aldar's Meera and Aabar's The Kite Residences on Reem Island. Saadiyat Island also welcomed Bloom Properties' Park View. These launches will add in excess of 3,600 new apartments to the market from 2018, in addition to the 1,800 units announced in 2014, bringing the much-needed new supply to the Abu Dhabi market. Demand for high-end villas was strong in the first half of the year, with the launch of TDIC's Jawaher Saadiyat and Hidd Al Saadiyat developments. Emirati investors also jumped to invest in the first phase of Aldar's Al Merief project in Khalifa City and Nareel Island on the northwestern corner of Abu Dhabi island.

- What price qualifies as affordable in the current Dubai housing market?

Affordability is a relative term as something that is affordable to a household with a monthly income of Dh50,000 will not be for one earning Dh20,000.

Typically, the global standard for housing to be affordable is that it should not represent more than 30% to 35% of a household's annual expenditure.

So, if we are looking at affordability for the lower mid-income segment of the population in Dubai, which according to Oxford Economics represents approximately 37% of all households in 2015, the maximum to be spent on housing should be from approximately Dh40,000 to Dh110,000 per annum in terms of rent. If this were translated into property ownership, an affordable sales price (taking into account service charge and finance cost) for the lower mid-income households would start from about Dh250,000 to less than Dh1 million.

- How do you expect the Abu Dhabi rental and sales markets to perform?

With the limited amount of new supply anticipated for delivery this 2016, the rental rates of different properties in Abu Dhabi are expected to remain at their current levels even if the rate of new job creation slows down.

This is because most buildings throughout Abu Dhabi are witnessing high vacancy levels that would only reduce if significant jobs were cut in the city.

Similarly, we do not forecast any major drop in prices of completed properties as these are still in demand, both from owner-occupiers and investors.

The sales for newly launched developments in different areas of the emirate, however, appear to have slowed down and are likely to pick up only as the buildings or structures near completion.

- How many affordable projects were launched in Dubai this year? Can you name the major ones.

If considering lower mid-income households as defined above, very few affordable projects have been launched. However, generally speaking, a variety of units within the price range of less than Dh1 million is available throughout Dubai, predominantly studio and one-bedroom apartments in Jumeirah Village, Dubai Sports City, International Media Production Zone (IMPZ) and Dubailand. A few projects qualifying as affordable include Midtown by Deyaar in IMPZ, Town Square by Nshama and Glitz by Danube. Although in terms of pricing these projects fall into the “affordable” bracket, it should be remembered that these are offered on an off-plan basis, which means that buyers need to finance the property and at the same time pay for their current accommodation until the new property is ready. For any purchase, upfront cash of at least 30% is required. In reality, very few people in the lower mid-income bracket can afford to buy.

- Question of the Week: How would you assess the performance of the Abu Dhabi real estate sector in 2015?

Despite a general slowdown in the residential sales market over the last six to nine months, the overall performance of the Abu Dhabi property market has been positive in 2015, with the rental market being remarkably active as prime and high-end projects continued to achieve close to 98% occupancy rates.

As a result, these recorded between 5% and 15% year-on-year (YOY) rental increases, with Saadiyat Island developments recording 15% YOY growth, Eastern Mangroves 14% whereas the best developments on Al Raha Beach and Reem Island were up by 5% and 6% over the year.

A long prospective tenant waiting list on prime projects is still persistent indicating the continued lack of prime quality supply for occupancy.

Sales prices, on the other hand, have gradually stabilised over the last six months, allowing for strengthened yields and positive long-term prospects for landlords, especially as new supply levels are limited. Apartments in Al Raha Beach and Saadiyat Island recorded the highest yearly sales price increases with Al Bandar and Al Muneera up by 6% and 4%, respectively.

Strong demand for villas in master-planned developments also resulted in good sales volumes for projects such as Al Merief and Nareel Island exclusively offered on a plot-sale basis to Emiratis.

Find out whether you should buy time or buy property

Source: John Stevens, Special to Freehold

The author is Managing Director - Asteco

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