A look at the rental market scenario in Abu Dhabi

A look at the rental market scenario in Abu DhabiAndrea Menown

Chic, sustainable and salubrious – organic is the word. But when the capital's government decided to let the rental situation unfurl ''organically'' by scrapping the 5% rental cap law last year, it had us worried.

Andrea Menown, leasing manager at LLJ Property, reveals the impact of this decision one year on.

The initial blow

Following the announcement of the rental cap removal, renewals in the early part of 2014 saw some landlords take extreme action and revise rental amounts to their financial benefit.

Numerous tenants vacated and some landlords were surprised at the void periods that followed. The second half of 2014 saw rents reflect a more ''sustainable rental level.''

Rents are rising up to 20% year-on-year, with popular buildings in prime locations rising by around 10%.

Tenants in older properties (greater than five years) saw the steepest rises with rates for existing tenants being brought into line with newer residents in the same buildings. Rental rates in properties of three years or less remained more stable as they are closer to prevailing market levels.

Demand vs. supply

Abu Dhabi's residential market looks set for a period of sustained price and rental growth.

The return of a growing number of government employees, originally choosing to be based in Dubai but now requiring Abu Dhabi lease contracts to satisfy their housing allowance requirements, has been reflected in 12 months of steady demand during 2013/2014.

The population is expanding at a faster rate than new developments are being completed, and demand for villa compounds has surged.

Across the board, residents are showing a continued preference for newer, master planned communities in prime developments with facilities and parking areas over traditional supply within the city.

These welcomed developments are seen to offer better value to the discerning tenants as well as friendly community living in a good quality environment.

An increasing number of tenants are, thus, choosing to relocate to new and upcoming areas on the outskirts of Abu Dhabi.

All types of properties continue to move quickly, reflecting a fine line between supply and demand.

By Abu Dhabi standards, the city has seen an ''abundance'' of building handovers during 2014.

New buildings have been priced to meet market demand, but there is a void of quality, well-maintained products in the mid/lower range.

Around 40% of current residents review the current market supply and decide to renegotiate terms and rental rates instead of moving house.

A significant number have also been forced to question the long-term financial benefits of renting in Abu Dhabi.

As such, we are seeing an increased number of ''owner occupiers'' taking advantage of the current market situation and lower mortgage rates and buying their own home.

Good times ahead

The city center will see a handover of several new buildings over the next six months.

The recent launch of the prestigious lifestyle concept Burj Mohammed Bin Rashid building has been welcomed by the rental market.

The tower, which is located at the heart of the city, is composed of 474 residences that vary from one-bedroom to four-bedroom units.

Reem Island is also anticipating the handover of part of City of Lights, offering more than 500 units of studio, one and two-bedroom apartments.

Future plans in Abu Dhabi include the launch of a rental index designed to create a more transparent market. The outcome of such a scheme aims to regulate maximum rental increase.

In the interim, tenants and employers are encouraging landlords to negotiate longer-term leases at fixed prices in the hope of curbing the impact of further rises.

New properties in the capital

• Burj Mohammed Bin Rashid building, previously known as World Trade Centre, which contains 474 residences on 92 floors

• City of Lights on Reem Island, which contains more than 500 studio, one and two-bedroom apartments

• Landmark Tower on the Corniche, which is 72 storeys high and contains both three and four-bedroom apartments

Get a glimpse on the paperwork when leasing property in Abu Dhabi

Source: Bushra Hameduddin, Special to Freehold


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