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The Abu Dhabi property market continues to rise this quarter alongside improved infrastructure and increasing demand. Aldar, an Abu Dhabi-listed developer which holds a land bank of 77 million square meters across the emirate, is also pinning its expansion to support Abu Dhabi's development through the creation of high quality, attractive and sustainable communities equipped with residential, commercial, retail, leisure, hospitality, education and medical facilities. Here, Gurjit Singh of Aldar gives his insights on the status of the Abu Dhabi real estate market.
In the last five years, especially during the slump in 2008, the market witnessed oversupply in all of its real estate asset classes. But prudent policies implemented that time to control the supply of new developments have resulted in quality developments now.
As soon as the recovery took place, two main changes came about. One was a new supply which met the needs, and the other was the growing population as jobs were created to carry out government-backed projects. Even now, the scarcity of supply is a major concern due to the increasing population. Moreover, as the economy-advanced investments start falling in and with improved infrastructure, it is palpable that the initial demand would be for rental accommodation.
Absorbing the supply
As a leading developer in the UAE, we have been able to help absorb the physical supply of the real estate market wherein our renters have the option of converting to property owners. For example, if you are on a long-term contract with us or a tenant, all you have to do is pay 50% of the total value of the property and it will be yours. We also launched off-plan sales this year, in which renters can upgrade themselves by buying a property that will be ready in a couple of years. The interesting trend now is that a lot of upgrades are happening in the market. As a result, we see prices rise year on year both for properties for rent and for sale, going up to 20% to 25% in the residential sector.
In view of that, the early stage of recovery saw increasing demand and constricted supply that, in turn, pushed the prices up. Perhaps with more supply coming in the residential sector in a few years, the situation will become smoother and more streamlined. The housing stock will also be absorbed well.
A lot of the stocks that we have in our books, those for rent for recurring income, have been absorbed, and some of the developments are 100% fully occupied. Those we have retained for rentals have actually crossed the almost full occupancy state. This bodes extremely well for us because we are in the business of producing recurring income for our business.
A well-structured property market
The Abu Dhabi market is quite well-structured with a firm high net worth base. The market can cater to both the high-end and middle income segments, and there is sufficient demand for both.
We are very conscious of market trends and always check Dubai to watch out for these. In the case of Dubai, we see the market softening there. In Abu Dhabi, we see a steady increase in rents.
In the next couple of quarters, we would still see rents in Abu Dhabi trending upwards even if more supply comes in the market, and probably more stabilization.
Housing inflation and correction
Both Dubai and Abu Dhabi have housing inflation, which is evident as the market is trending upwards. In the case of Dubai, it is stabilizing now.
The phenomenon about correction is that it does not stop at any point of time. Perhaps the correction happening in the market now will result in plateauing.
As and when there is a shift in market fundamentals, improved economy will result in increased demand.
Again, there will be a small correction with more supply that will bring in stabilization. Consequently, inflection will occur, resulting in either the market going up or down.
Realty market trends in the capital
• Abu Dhabi's residential prices grew by 7 per cent this quarter with an average increase of 17 percent in the first half of 2014 as per JLL reports
• Aldar sold out all of its supply of 223 units from Al Hadeel Project in Al Raha Beach in May and Ansam Development in Yas Island sold off units at prices ranging from Dh1,540 to Dh1,550 per square foot
• Abu Dhabi's supply pipeline increased to 1,750 units on Reem Island, Danet Abu Dhabi and Al Reef in the second quarter, pushing the total stock to around 24,000 units as per JLL
Read more about Abu Dhabi realty which steadies in Q3
Source: Anitha Lakshminarayanan, Special to Freehold