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Abu Dhabi: As local real estate developers launched new residential projects at Cityscape Abu Dhabi featuring high-end villas and town houses, affordable housing remained the elephant in the room, with limited supply in that market.
There is, however, growing demand for affordable housing both from individual investors and corporate clients especially in the oil and gas sector that are looking to cut their housing costs, according to Cluttons, a real estate consultancy.
“I suppose what’s telling is we’re actually seeing rental rates going up in the affordable residential developments because there is demand for them. We believe there is a gap in the market for more affordable products.
It’s certainly an avenue developers should look at because there will be demand for these products,” said Edward Carnegy, head of Cluttons Abu Dhabi.
Speaking to Gulf News during Cityscape, Carnegy said that there was also a need to strengthen the regulations and the legal framework from the government in order to boost the development of affordable housing.
“If we talk about financing, people have to be able to afford to buy [the housing] in the first place. I think a compromise situation could be public-private partnership, so the government may be injecting land into a development and a developer financing cost-effective housing,” he said.
From a developer’s perspective, affordable housing comes with a challenge of lower profitability compared to higher-end projects. However, Carnegy pointed that affordable housing also requires lower build cost, which means it was a matter of developers trying to find the right cost-to-profit equation.
Sameh Muhtadi, chief executive officer of Bloom Properties, an Abu Dhabi-based developer, said, affordable housing was a “very difficult segment to cater for”.
“It’s a very difficult segment to contain construction costs especially with the land valuations as they are … It’s not as profitable as [the rest] of real estate, but the profit is in numbers — in scale, so you make up for the smaller margins in the scale,” he said.
The CEO believes that Bloom has found the right formula, however, with plans to launch more than 5,000 units in the affordable housing units for sale and lease by early 2019.
The development, which will be located close to Abu Dhabi International Airport, is still in the master-planning stage. Muhtadi said he was hoping the project’s location will help attract large corporations whose employees work at the airport.
“[Affordable housing], in our mind, is the one segment of the market that is least catered for and it has the highest demand. The sweet spot for what we would consider affordable would be Dh800,000 for a two-bedroom apartment to sell, and it will be Dh75,000 to rent,” Muhtadi said.
As per the Urban Planning Council’s regulations, every master plan must have a certain quota of residential units allocated to mid-market housing. For Mubadala, for example, which is the master developer behind Al Maryah Island, a component of the Island’s plan has been allocated to the mid-market segment.
However, the strategy on when and how to develop such housing has not been finalised, according to Saed Arar, associate director of Mubadala Real Estate.
The case is much the same with other developers that have approved plans for mid-market housing, but are yet to construct the units.