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The lack of affordable housing in Abu Dhabi provides a major opportunity for developers to fill the gap with “genuine affordable” housing, according to a report by international real estate consultancy Cluttons. The growing problem of the lack of affordable housing in the Abu Dhabi is clear according to Cluttons’ Abu Dhabi 2015/16 Winter Property Market Snapshot, following a 34 per cent increase in average house prices since 2010.
“Abu Dhabi is clearly short of affordable neighbourhoods,” said Edward Carnegy, head of Cluttons Abu Dhabi. “This issue of affordability has been building for some time, initially following the introduction of the federal mortgage cap and doubling of property registration fees. These had the desired effect of cooling the market, but now many people are forced to pay premium rents, limiting their ability to become owner occupiers in the long term.
“This presents a major opportunity for developers to deliver housing that is genuinely affordable, while still of high quality, with the potential to offer flexible access to home ownership through models such as rent to own.”
Newly planned legislation around fixed quotas for affordable homes could help to ease access to the property market has been drafted, but details are yet to be confirmed. According to Cluttons, the idea of affordable housing has served cities such as London well, where developers are liable to provide affordable housing for developments starting with as little as ten units.
“To truly tackle the problem of affordability, it’s important to run the numbers,” said Faisal Durrani, Head of Research at Cluttons. “An average expat household aspiring to purchase a home in Abu Dhabi has to contend with an average annual rent of Dh204,000 against an average household income of Dh199,000.
“Furthermore, there are signs that a liquidity crunch may be bubbling away in the background. During October, The National Bank of Abu Dhabi reported a Dh56 billion decline in government deposits between September 2014 and September 2015 across the UAE banking system, which is likely to curb mortgage lending, putting home ownership out of reach for many.”
Carnegy added: “Coupled with the federal mortgage caps, this will no doubt curtail the level of mortgages extended to end users, particularly if the era of low oil prices persists, adding to the affordability issue.”
During the third quarter, average residential capital and rental values stagnated, pushing the annual rate of change down to 1.7 per cent and 2.9 per cent respectively. Average residential capital values now stand at Dh1,336 per square foot.
Source: Property Weekly