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Strong demand for small housing units in Abu Dhabi has kept rents at record high levels but they are expected to remain stable through the year because of the psychological impact of the global financial turmoil, dealers said yesterday.
In contrast, receding demand for villas and other big houses has pushed down prices by more than 20 per cent and they could slide further this year.
Dealers described the rents sector in the capital as a "vicious cycle" on the grounds strong demand for small units was caused by low demand for big units.
"People are moving from big units to small units following a sharp rise in rents of big units over the past two years… this phenomenon has depressed rents of big units but at the same time put great pressure on small units and kept their rents at high levels… this is a vicious cycle," said Laurence Al Hadi, a dealer at Smart Mark, one of the largest real estate agents in Abu Dhabi.
"So far this year the rents of villas and other large housing units, including at least three-bedroom apartments, have declined by more than 20 per cent and we expect them to continue their decline this year… in contrast, rents of studios and one-bedroom apartments have remained high. They have not gone up but they have not declined as well. We expect them to remain high through the year."
A surge in rents over the past few years has turned the capital into one of the most expensive cities in the world and dealers have blamed a sharp increase in demand coupled with lower than expected supply. Unlike other emirates in the UAE, Abu Dhabi has resisted a general trend of a large fall in property prices over the past few months because of the global crisis although it has been affected by the ensuing steep drop in oil prices.
No real drop
Dealers ruled out any real drop in rents of small accommodation units in the capital in the near future as a result of high population growth, relatively strong economic fundamentals in the emirate, high demand for small apartments, and the fact that a large part of the thousands of housing units entering the market are designed for high-income people.
"Rents of large flats have fallen by at least 20 per cent this year while those of small units have remained unchanged but at record high levels," said Khalifa Mohammed of Ghazal Al Jazeera real estate agents.
"But I think this year is far more stable than the previous two years, when rents recorded very high growth rates. There have been slight decreases in the rents of some relatively small units here but this has nothing to do with market fundamentals as demand is still very high. The reason is psychological and is directly related to the global crisis and recent fall in rents in Dubai. In general, this year will be better than last year in terms of rent stability but I can't tell the people that rents will return to their level three years ago."
Huge investments
Official figures showed Abu Dhabi, the main oil producing emirate in the UAE, attracted nearly Dh180 billion in real estate investment in 2008 but such projects have failed to push prices down because of strong demand.
Rent fall
According to Al Hadi, the rent for a new three-bedroom apartment in a prime location in Abu Dhabi city has tumbled to an average Dh220,000 from a record Dh350,000 at the beginning of the year. Studio flats remained as high as Dh60,000-80,000 while one-bedroom apartments are above Dh100,000. "Abu Dhabi remains strong and active… more people are coming in than going out and we are still flooded by house seekers. my feeling is that rents of big housing and commercial units could still decline further but those of studios and other small units will remain high. At this stage, I can tell you that there is no way the rents of small units will go back to Dh30,000 recorded three years ago."
High population growth
Abu Dhabi has one of the highest population growth rates in the world and the emirate projects its population to nearly triple at the end of its Vision 2030 long-term development plan, which also involves massive construction work.
Official figures showed Abu Dhabi's population surged by nearly 12.6 per cent to 2.14 million in 2007 from 1.9 million in 2006, one of the highest growth rates in the world. It was expected to grow by around 7.5 per cent to 2.3 million in 2008.
"Actually, we were hoping that rents of all units in Abu Dhabi will decline this year but we are still waiting," said Ahmed Khalil, another local real estate agent.
"I deal mostly in small units and their prices are still as high as at the beginning of 2009… some landlords have not enforced the five per cent rent increase this year. The global crisis has not weakened demand in Abu Dhabi and that is why I think we will not see a real decline in 2009. In the long term, I think what Abu Dhabi needs is the building of a large number of low-cost houses as most expatriate workers here are low-to-medium income people."
The rapid increase in rents in the capital over the past few years has rendered many of the expatriate workers unable to get their own apartment as the increase sharply widened the gap between the rent and their monthly wages.
In terms of GDP per capita, Abu Dhabi has one of the highest per capita incomes in the world, standing at Dh215,000 in 2007 and around Dh225,000 in 2008.
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