High demand and low supply send rents spiraling
The UAE capital and its suburbs are suffering from a severe shortage of residential apartments – and the problem is set to continue for at least three years.
Official studies and market sources confirm there is a huge gap between the supply and demand of residential units. And they warn that the situation could turn into a crisis next year.
A study carried out by Abu Dhabi Chamber of Commerce and Industry (ADCCI) said that until 2005 the market was stable with no shortages. All types of apartment hunters were catered for, from people looking for low-cost units to those seeking upscale luxury apartments.
Rents remained level and the number of residential units in Abu Dhabi totalled 287,000 – enough to meet the demand at the time. But in 2006 the population rose and the number of new flats constructed was insufficient to meet demand, leading to a shortfall of 3,000 units.
The problem worsened last year when the shortage grew to between 7,000 and 8,000 residential units.
In 2007 and 2008, rents for some residential units increased by 140 per cent. The ADCCI report said the shortage will reach at least 20,000 units and this will have an impact on all economic activities in the emirate.
The study suggests that new buildings in Abu Dhabi will meet only 20 per cent of the shortfall this year, which will probably result in a crisis next year.
Most of the units coming on to the market now are designed for those with high incomes while people with medium or low incomes have been worst hit by the high rent.
The shortage, according to market insiders, has most affected those earning up to Dh20,000 a month. For many Abu Dhabi residents finding a suitable and affordable residential unit is a huge and difficult task.
“I have set aside a reasonable budget for housing, but the question is where can I find an apartment in this city?” said a GCC national banker, one of the house-hunters in the capital. “I have been hunting for a flat for months but have had no luck so far. Studio flats and one- and two-bedroom apartments are not available.”
Real estate agencies in the capital complain that their businesses have been affected by the shortage and do not foresee stability in the market for years.
Mohammed Ali of Waves Properties said the gap between supply and demand was huge, and was growing larger.
“The shortage of residential units in the city and its outskirts is at a peak,” he said. “The situation may grow worse next year if there is no improvement in supply. We don’t see the market returning to normal in the next three years. Whatever new property comes on the market is leased out to government organisations and big companies. Another problem is that most new buildings are mixed use and include shopping malls and very expensive furnished apartments – very few 100 per cent residential buildings are being developed,” said Mohammed Ali.
VA Maju of Silverlake real estate said he was often unable to provide customers with apartments because of the shortage.
“The situation is very bad. There are only a few units and this is affecting our business. We have many customers but cannot satisfy them, therefore we lose business.”
“These high rents show that the market’s requirements are not being met. I believe it will take from three to four years for the market to stabilise, with the supply equal to or greater than demand.”
Real estate agencies said the most sought-after parts of the capital are the Corniche, Hamdan Street, Khalifa Street and Khalidiyah – but apartments very rarely become available in these areas.
Mohammed Abdullah Ali is Deputy Director of the Rents Committee at the Department of Commercial Buildings and Social Affairs, which controls most residential properties in the emirate. He agreed with the agents’ services concerns and said he does not see the market stabilising for a number of years.
“There is a gap between supply and demand,” he said. “There are a number of reasons for this. The key one is that the capital is going through a major development phase with most of the old buildings being demolished and replaced with new ones, and this will take some time to complete.
“Also all the new properties are expensive because of the costs involved in these projects and because they are being constructed with added facilities.
“Therefore owners have to increase rents to obtain a return on their investment. Most people seeking apartments are looking for ones in old buildings that they can afford – and those are in short supply.
“We are going through a transitional period, which will take three to four years for the market to become stable.”
The ADCCI said in its report that rents should not be increased for at least two years and there should be a mechanism to set rents.
New regulations and laws covering the real estate sector should be introduced and steps taken to restore rents to acceptable levels.
The ADCCI report recommends greater private sector participation in the provision of homes for people with lower incomes. It calls for increased salaries for both private sector and government employees to help them cope with growing inflation. And it said companies should be allowed to operate from private villas to help reduce the burden on commercial buildings.
It said inflation had to be addressed to achieve a real fall in 2008.
Rent increases contributed 40 per cent to the rate of inflation and together with fuel were responsible for more than 70 per cent.
AREAS IN HIGH DEMAND
The demand for residential units has been increasing in many prime areas. These areas include the entire stretch of the Corniche Street (the skyline of Abu Dhabi), the whole area between Khalifa, Hamdan and Zayed the Second streets and Khalidiyah.
These areas, according to real estate agencies, hardly have any units available for their clients. The situation started deteriorating from 2006 when the city’s population started increasing rapidly and old buildings were being demolished and redeveloped. Since 2006, very few new properties in these areas have been developed for pure residential purposes.
Other areas of the city where the demand for residential units is growing are the Medinat Zayed Commercial area, Tourist Club and Manasir area next to Khalidiyah. These areas are also facing acute shortage of properties.
One of the main reasons of shortage in these areas is that most of the old buildings that supported the market are being renovated and turned into furnished residence apartments, and some leased out to agents who multiply the occupancy and rent them out to groups of bachelors.
Abu Dhabi city and its suburbs are currently undergoing major development schemes with hundreds of new properties, including villas, garden houses and residential buildings.
According to market sources, these new properties will start coming online from 2009, and the following year their number will increase gradually and by 2012 the market will have substantial units to meet the demand.
Properties entering the UAE capital’s market from next year and beyond include those under construction in Abu Dhabi’s Mina (port) area, the old Bateen Dhow Yard, Al Raha Beach and Muroor Street areas.
The mega projects that are shaping up under Abu Dhabi 2030 Urban Plan include the Al Reem Island development, the entire Al Raha Beach stretch, the Port Zayed area, Breakwater area, Coconut Island and several other islands. All the projects completed by 2030 can accommodate a new population of more than a million.
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