Projects depress Abu Dhabi rents

Rents of some units dip 30% in 2010 as landlords vie to keep tenants

At the height of the housing crisis in Abu Dhabi during 2007-2009, landlords dominated. A steady fall in rents ever since has reversed that situation.

After they controlled, manipulated and pushed to expel their clients, landlords are now begging their tenants to stay, offering them cuts after cuts in rents.

Such offers have allied with post-crisis economic uncertainty and massive housing projects just outside the city of nearly one million people to bring rent sharply down from their highest level during the housing crisis.

In 2010 alone, rents of many units dipped by nearly 30 per cent and they could further slide in 2011 once those housing projects are completed and new ventures are launched, mainly in housing investment areas in the outskirts.

A recent law issued by the government to regulate foreign ownership of houses in investment areas will also ease pressure on the capital and depress rents.

“Owners of old buildings have cut rents by nearly 30 per cent this year to keep their tenants in and tempt them to extend the rent contract following a sharp increase in house supply in the city and its outskirts,” said Mubarak Alamiri, Chairman of the Abu Dhabi-based Sumood Real Estate Company.

Dealers said rents had also fallen because of a decision by Abu Dhabi authorities to move hundreds of thousands of construction workers to special accommodation quarters near Musaffah and other areas outside the capital.

“Thousands of those workers have already moved and thousands others will be moved out…many tenants in Abu Dhabi have also moved to much cheaper apartments in Sheikh Khalifa and Sheikh Mohammed cities near the airport and this has led to a large increase in housing supply, which in turn put further pressure on rents,” said Ahmed Madi, another real estate agent.

“My expectations are that rents will fall further in the next few months but not as fast as they have fallen in the past year….I expect a further decline because more than 100,000 people are expected to move to the nearby Reem Island early next….all these factors along have created a psychological sentiment among both landlords and tenants that rents must keep falling.”

After peaking at more than Dh75,000 a year, a luxury studio flat is now priced at around Dh50,000 while a normal studio apartment could be rented for Dh35,000. In Sheikh Khalifa City, studio rents are now as low as Dh20,000.

Even in Abu Dhabi’s town centre, the most expensive area, the rent of a one-bed room apartment has now plunged to around Dh50,000 from more than Dh80,000 while that of a two-bed room has dipped to Dh75,000 from over Dh100,000.

Newspaper advertisements clearly reflect the drastic change in mood in the housing sector as most of them include attractive rent offers by landlords. This is in contrast with two years ago, when tenants would make an offer to get a flat.

“The landlords are also make other offers to attract tenants…they include free electricity and water, free maintenance and free renovations,” said Adel Abdul Monem, Director of the Sahm real estate company in Abu Dhabi.

Real estate agents cited another factor for the decline in rents in Abu Dhabi, the main oil producer in the UAE and home to nearly a fifth of the country’s population of around five million. They said surprise raids on buildings by municipal authorities to ensure they do not house construction workers or a group of bachelors is also putting pressure on landlords.

“If you try to get a flat from any landlord, the first question he will ask you whether you are a family or alone…if you have friends with you, you will not be able to get that apartment…they are just can not risk punitive measures by the Abu Dhabi Municipality following its warning to them,” Madi said.

Abu Dhabi authorities have repeatedly warned landlords against letting their apartments and other housing units to workers and vowed to push ahead with random raids to ensure they would comply with the decision.

The Abu Dhabi Municipality said landlords must not rent their units to workers on both an individual or a collective basis and also warned contracting companies that they must find suitable housing for their workers outside the city.

“Landlords who fail to abide by the new rules will be prosecuted…the Municipality  will continue with all firmness its campaigns to eliminate this phenomenon of accommodating workers in residential areas in the city,” it said.

“This decision is intended to ease pressure on utilities, improve the image of the city and strengthen the feeling of public security and safety.”

Experts said the decision is putting further downward pressure on rents in the Capital following the steady decline over the past 15 months.

“This decision means the shift of hundreds of thousands of workers to outside residential areas in Abu Dhabi city…this in turn means the evacuation of thousands of apartments and houses and this will consequently lead to an increase in house supply,” said  Omar Ali Ragheb, Manager of Ramco Real Estate, one of the largest property agents in Abu Dhabi.

Ragheb cited the completion of major housing ventures in Sheikh Khalifa and Sheikh Mohammed cities just at the northern entrance of the capital as well as the imminent completion of some of the buildings on Reem Island.

Developers said 12 high-rise towers with at least 80 apartments each on Reem Island close to the Abu Dhabi coast would be inhabited by early 2011.

After all housing projects are completed within five years, Reem will accommodate more than 120,000 people, they said.

“These projects in the outskirts and on islands will largely ease pressure on housing in the city…such projects will offset any increase in demand for housing this means we will see further falls in rents,” Ragheb said.

The decision to build those housing villages followed repeated complaints by workers about poor living conditions and unannounced visits by inspectors from Abu Dhabi Municipality and Ministry of Labour to company quarters and stores, which housed thousands of workers, mostly Asians.

At least 15,000 workers are believed to have completed moving  to Al Raha Residential Village near Mussafah since the beginning of this year.

The Village’s chief executive Fouad Masha’al said the management has been receiving many requests from companies to accommodate their workers.

The increase in requests follows a three-month deadline set by the Abu Dhabi Municipality in June to move workers in Abu Dhabi to Musaffah villages.

Masha’al said the village is ready to welcome more workers as the village has the capacity to house about 35,000 people, adding that a new housing village would be ready by the end of November.

“There are many workers who still live in Abu Dhabi but most of them are in very old buildings…eventually, they will be evicted,” Madi said.

“The Municipality is serious about moving all those workers out of the city…most landlords no longer allow bachelors or workers because of recurrent raids…you just phone the municipality officials and tell them there are many bachelors or workers in a certain building and you will see the inspectors raiding that building the next day…they appear serious in enforcing these rules.”

 

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