Rents in capital become more affordable

Residential rents in Abu Dhabi city have recently fallen between 15 and 20 per cent following the entry of a large number of properties in the market, executives at real estate companies told Emirates Business.

Rents outside the city have plunged even more with decline of as much as 40 per cent being commonplace, they said.

And office rents have also fallen sharply.

Commercial units in the city are now commanding 35 per cent less than previously, while the rate of decline outside the capital has reached 45 per cent.

The decline has been triggered by the handing of more than 3,500 residential, office and hotel apartment units in Abu Dhabi over the past few months, according to sourrces. This has helped the supply of properties to catch up with demand, which in turn has depressed rental values.

"Residential rents in Abu Dhabi city are gradually falling and the rate of decline ranges currently between 15 and 20 per cent," said Abdullah Al Borsaeedi, Chairman of Al Ghanem Real Estate.

"This is a result of the delivery of a large number of villas at Khalifa City A and residential towers at Mohammed bin Zayed City over recent months, which has caused rents in both of these areas to fall.

"For example, the rent for a villa at Khalifa City A fell from Dh320,000 per year to Dh200,000 and the rent for a two-bedroom unit in the Musaffah area went down from Dh150,000 to Dh120,000. The reductions have encouraged tenants living in Abu Dhabi city to move to Khalifa City A and Mohammed bin Zayed City. In some cases, villas are being divided into three units, each with a rental value of Dh75,000," said Borsaeedi.

The movement of tenants from properties in the city has had a knock-on effect on prices there. Al Borsaeedi said the rent for a typical two-bedroom unit in Abu Dhabi had fallen from Dh180,000 to Dh150,000, while the rent for a three-bedroom unit has declined from between Dh250,000 and Dh280,000 to between Dh200,000 and Dh220,000.

Meanwhile, rents for offices have fallen from Dh400,000 to Dh250,000.

And he predicts that rents in Abu Dhabi could see even bigger declines over the coming months as new towers on Al Reem Island are delivered and towers and other buildings at Mohammed bin Zayed City enter the market. Also in the pipeline are 45 seven-storey buildings at Mohammed bin Zayed City that are nearing completion and their delivery is also likely to put further pressure on rents.

Talal Khouri, Chairman of Al Awael Real Estate, said rents in Abu Dhabi city have fallen by at least 25 per cent.

"The reason for this is that a considerable number of expatriates have sent their families back to their home countries due to the international financial crisis, lowering demand for larger homes," he added.

"And families who have stayed in the capital are afraid they will lose their jobs or their incomes will decline, and this has prompted them to reduce their spending.

"The fall is also a result of the delivery of new projects. Villas outside Abu Dhabi that were being rented out for Dh700,000 are now fetching Dh350,000 – a fall of 50 per cent. And I think the market will soon see even greater falls in rents."

Ridha Muslim, Director-General of Abu Dhabi-based Truth Economic Consultants, said rents in Abu Dhabi were starting to enter a period of balance between supply and demand. "New residential units enter the market every day," he said. "Al Reem Island's huge towers will be inaugurated over the next six months and several residential towers inside Abu Dhabi city and at Mohammed bin Zayed City are nearing completion.

"We have started to notice the fall of rents inside Abu Dhabi city. For example, villas located near Marina Mall that were previously rented out for Dh700,000 are now fetching only Dh500,000, and the rents for other residential units have fallen by 15 per cent.

"Our company, which specialises in carrying out studies and providing consultancy services for Abu Dhabi's real estate market, expects rents to fall by 35 per cent over the next six months. The decline will continue with the continuing delivery of new projects.

"There are tens of projects inside and outside the city that are due to be delivered over the next two years. I think Abu Dhabi market will return to the situation that prevailed before 2006 within two years at the most."

Muslim said landlords were resisting the trend towards lower rents, adding: "There are many real estate companies in Abu Dhabi that have rented out a large number of residential units over the past two years for high amounts, and the current situation does not satisfy these companies.

"As a result they are delaying renting out units. There are many units that are currently vacant inside the city and the companies refuse to rent them out at the current values. But I think these companies will not be able to withstand the decline for long. The situation will change with the opening of Al Reem Island's towers, especially as the majority of companies and real estate brokerage offices took loans from banks and the banks are currently calling on them to pay back the loans.

"Some nationals are refusing to rent out units at the market prices. They had hoped to rent out the units for higher prices, especially as the construction costs for the units were high. But I think they will not be able to withstand the trend for long," said Muslim.


City of Skyscrapers

A construction boom in high-rise buildings in Abu Dhabi is seeing several 80-storey tall towers being constructed for the first time in the city.

A tour by Emirates Business revealed more than 25 towers under construction in the city and Al Reem Island with at least 65 floors completed.

Work at these towers is going on day and night after power and water services were connected to them.

Not long ago the city's highest towers used to be Baynouna Tower and the Abu Dhabi Investment Authority tower, which are located in the Corniche area. Both are more than 30-storey tall.

Ahmed Al Mazroui, Head of the Contractors' Committee, told Emirates Business: "Work at high-rise residential buildings in Abu Dhabi is going ahead and there is no delay in the implementation of the projects. The Contractors' Committee has not received any complaints about payments to Abu Dhabi-based contracting companies.

"The companies are receiving all payments on a regular basis and have engaged thousands of labourers to complete their projects on time and benefit from the global fall in the prices of building materials.

"Abu Dhabi is full of property projects and other development ventures such as roads and bridges both inside and outside the city.

"Many GCC and international contracting firms are trying to finish their projects as soon as possible.

"The gap between supply and demand in Abu Dhabi's real estate market, whether in residential or office units, will close. The market will stabilise with the completion of most new projects maximum in a year's time. The new towers need finishing touches, which are being carried out meticulously and quickly."

Otaiba Al Otaiba, Head of the Abu Dhabi Chamber of Commerce and Industry's Property Committee, said: "The gap between supply and demand with regard to accommodation in Abu Dhabi is at 28,000 to 30,000 units.

"The accommodation crisis in Abu Dhabi happened because of many reasons, the most important of which were speculators who harmed the market. Most of them were brokers working at real estate brokerage companies.

"The global recession and falling demand has led to the disappearance of speculation to a large extent," he said.

Otaiba said: "However, the gap between supply and demand still exists. Thousand of overseas workers are pouring into Abu Dhabi and they are in need of accommodation. I think the accommodation crisis in Abu Dhabi is going to be resolved within one or two years, especially with the completion of new projects. These are not just high-rise buildings that contain thousands of residential units inside Abu Dhabi city. There are also thousands of villas and buildings that are being constructed outside the city, such as Aldar's villas projects at Al Raha Gardens and Al Raha Beach project."

Otaiba said: "If we add to these projects the hundreds of old buildings that are less than five storeys being replaced with high-rise buildings, we will acknowledge that the accommodation crisis in Abu Dhabi is going to be resolved and prices will go back to 2006 levels when the rent for a two-bedroom apartment was Dh50,000, for a three-bedroom apartment it was Dh75,000 and for a villa it was Dh130,000."

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