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15 July 2024

Appetite for Abu Dhabi realty finance robust

David Martin (SUPPLIED)

By Karen Remo-Listana

The appetite for financing Abu Dhabi's real estate projects remains robust, say experts.

RAK Bank, for one, says it will be increasing its mortgage portfolio in the emirate by about 20 per cent this year. "We don't see any completion risk at the projects we have financed in the capital," said the bank's business consultant David Martin.

"We understand there are 30,000 housing units needed in Abu Dhabi to fulfil the current demand.

"We believe from the information that we have that there remains a solid demand in Abu Dhabi."

Chris Dommett, CEO of John Charcol Dubai, said the mortgage market in Abu Dhabi remained strong.

"There has been more appetite to lend in Abu Dhabi," he said. "There are certainly many activities and the emirate's government has provided some more liquidity to the banks down there.

The banks' appetite is giving a further boost to the supply of liquidity to Abu Dhabi's property sector, which was recently beefed up by the launch of Abu Dhabi Finance.

This Dh500 million joint venture has been set up by the Abu Dhabi Commercial Bank, Aldar, Mubadala Development, Sorouh Real Estate and the Tourism Development and Investment Company.

The new player said it would offer mortgages with loan-to-value ratios as high as 85 per cent and debt-service ratios of up to 55 per cent.

Dommett added: "If you look at Abu Dhabi Finance they will only lend for developments by their shareholders such as Aldar, Sorouh and Mubadala."

Ian Ohan, Regional Director of Jones Lang LaSalle Mena, said the real estate sector was expected to remain robust thanks to the emirate's strong macro-economic fundamentals.

"Abu Dhabi is a very different story from Dubai simply because it is at a different stage in the real estate cycle," he told Emirates Business. In terms of the freehold market the amount of product that has been put in the market in Abu Dhabi is much smaller than in Dubai.

Global Investment House said the residential market in Abu Dhabi was deeply undersupplied. It had a population of 930,000 at the end of 2007 but only 180,000 units were available, according to the Urban Planning Council.

Figures from Colliers show that the supply of residential units is expected to increase by 213,000 by 2010. Vacancy rates in Abu Dhabi's residential market have dropped from an average of 2.5 per cent to less than one per cent, it said.

And property sales grew by 89 per cent between Q4 2007 and Q4 2008 on the back of sales of properties at premium developments such as Al Raha Beach, which has witnessed an average price increase of 130 per cent since its launch. Rents have witnessed the highest year-on-year increase since 2001, growing by 65 per cent between Q4 2007 and Q4 2008 despite the revision of the rent cap imposed in Abu Dhabi from the seven per cent rate introduced in 2007 to five per cent in 2008.

Data from Asteco shows that the annual rental rates in Q3 2008 ranged from Dh80,000 to Dh170,000 for a one-bedroom apartment, from Dh120,000 to Dh250,000 for a two-bed and from Dh140,000 to Dh350,000 for a three-bed.

In Q4 2008 rental rates in Abu Dhabi increased by one per cent on a quarter-on-quarter basis for one and two-bedroom apartments, while rents for three-beds were stable.

Rents for villas in Abu Dhabi continued to increase in Q4 2008. The average annual rate was Dh375,000 for a three-bedroom property, Dh445,000 for a four-bed and Dh535,000 for a five-bed.

The office market in Abu Dhabi is also undersupplied, especially primary office space. Office rental rates have appreciated by 14 per cent between Q4 2007 and Q4 2008 according to Colliers International, with vacancy rates of almost one per cent. Rents in the Central Business District ranged from Dh2,500 to Dh4,000 per sq m in Q4 2008.

"We do not foresee any decline in Abu Dhabi's office rental rates in the medium term," said GIH.

"However a slowdown in the rate of growth is expected due to the lack of demand in line with current financial crisis and the slowdown of economic activity."