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Expat influx to arrest decline in capital rents

Recent sharp fall in rents caused by economic downturn and rise in supply. Projects on Reem Island to stabilise expected rise in housing demand. (EB FILE)

By Nadim Kawach

Housing rents in Abu Dhabi have recorded their first major decline over the past few months in more than three years but the decline is expected to slow down in 2010 as an expatriate influx is projected to pick up, dealers said yesterday.

An expected recovery in domestic demand for housing this year resulting from an economic upturn, the launch of new infrastructure projects in the emirate and rapid population growth could normally push up demand, but this would be offset by expanding supply on the capital's outskirts, they said.

After rocketing by at least 200 per cent through 2007-2008 and most of 2009, housing rents in one of the wealthiest cities in the world have receded by 10 per cent to 30 per cent over the past five months because of the availability of new accommodation units in the market and the departure of a large number of expatriate workers with some projects having been either completed or put on hold.

"You can say there has been a decline in rents of at least 10 per cent over the past five to six months…this is the first time that rents have recorded a real decline in more than three years," said Omar Ali Ragheb, Manager of Ramco Real Estate, one of the largest property agents in Abu Dhabi.

"There are several factors that contributed to this phenomenon…these include the post-crisis economic conditions, an increase in supply mainly outside the city and completion or postponement of some infrastructure projects in the emirate."

Ragheb cited the completion of major housing ventures in Sheikh Khalifa City and Sheikh Mohammed City at the northern entrance to the capital as well as the imminent completion of some buildings on Reem Island, as an important factor.

Reem triggers fall in rents

Developers said 12 high-rise towers with at least 80 apartments each on Reem Island off the Abu Dhabi coast would be inhabited in mid-2010. Once all housing projects are completed within five years, Reem Island will accommodate more than 100,000 people, they said. "These projects on the outskirts and on islands will largely ease pressure on housing in the city. Such projects will offset an expected large increase in demand for housing this year. This means we will see a sort of stability or only a slight fall in rents this year," Ragheb said.

Reem, meaning deer in Arabic, has been transformed from a little strip of land staring soundlessly round the clock for centuries at the city's busy life and dazzling lights, into a huge habitat that could form the nucleus of the capital in future.

When night befalls and envelops Abu Dhabi city, heavily-lit tall towers can be seen gleaming from most parts of the capital and the once-silent, desolate island will start to bustle with life this year, after the inauguration of 12 massive towers and the completion of most infrastructure projects on the tiny strip.

"Reem is very close to Abu Dhabi and this has turned it into an attractive place to live in, for both nationals and foreigners….This project along with other housing projects in Musaffah, Al Qurm, Khalifa City and Mohammed City could contribute to halting future rent rises and achieving stability in rents this year," Ragheb said.

"As you know, Abu Dhabi is still considered an attractive investment destination by foreigners which means there could be many new projects this year. This could exert upward pressure on rents but on the other hand, we will see downward pressure from new housing projects just outside the city."

Unlike other emirates, oil-rich Abu Dhabi has resisted a general downward trend in rents despite massive investments in the real estate sector. Official figures showed that Abu Dhabi, the main oil producing emirate of the UAE, attracted nearly Dh180 billion in property investment in 2008, but is expected to see a sharp decline through 2009. Such massive investments failed to bring prices down in 2008 and through most of 2009 because of strong demand.

Despite the global financial crisis and the ensuing decline in commodity prices worldwide, rents and property prices in the emirate have remained high and the market could start to see stability setting in within a few years, according to a recent study by the Abu Dhabi Department of Economic Development (Added).

Low-cost housing units

The study said the Abu Dhabi authorities are proceeding with their policy of building new low-cost housing units in a bid to stabilise the property market. About 20 per cent of the new units coming onto the market would be aimed at low-income investors.

Rents and property prices in the emirate have remained high for some time, and the market could start to stabilise only in the next four years, said Ahmed Al Fayeq, Economic Researcher at Added.

Al Fayeq estimated the total investments pumped into the emirate's real state sector at a staggering Dh880bn between 2004 and 2007. "In 2008 alone, Abu Dhabi attracted an estimated Dh180bn in the real estate sector, including expansions and new projects," he said.

"As the emirate pushes ahead with investments despite the global financial crisis, our expectations are that nearly 180,000 new units will enter the market during 2008-2012…more units will enter this year as developers are pressing ahead with their planned projects. It is clear that the global financial crisis has had no impact."

In another study published last year, the Abu Dhabi Chamber of Commerce and Industry (ADCCI) said it expected rents in the emirate to remain relatively high because of high demand and insufficient supply of housing units.

The report added that low and medium-income expatriate employees were expected to be the main victims of higher rents that have more than doubled over the past three years while their salaries have remained almost unchanged. Its figures showed the capital's real estate market was almost balanced in 2005 as the nearly 287,000 housing units sufficed to cover domestic demand.

Shortfall in supply keeps up demand

But a surge in demand in 2006 was not met with a similar supply growth, generating a shortage of around 3,000 units. In 2007, the gap more than doubled to nearly 10,000 units and is believed to have jumped to more than 15,000 units in 2008. The report estimated the gap at nearly 20,000 units in 2009 and 22,000 in 2010.

"Demand is still relatively high but below the levels seen in early 2009 and 2008…given the growing supply in housing in areas outside the city, rents have started to ease…I believe there has been a decline of 25 per cent to 30 per cent over the past few months," said Imad Mansour, a dealer at Shafco Real Estate.

"As for 2010, rents could slip further or stabilise although more buildings will be delivered to the market. This is because most owners are under pressure to pay back their property loans to banks and for this reason I don't think they will be in a position to sharply cut their rents. What contributes to easing the problem is that many housing units outside Abu Dhabi are now ready to be accommodated while thousands of flats within the city are being evacuated by expatriate workers who are being relocated to Musaffah, outside the city," he said.

Mansour and other agents noted that rents of luxury studio apartments within Abu Dhabi city have fallen to an average rate of Dh50,000 to Dh90,000 per year from the previous rate of Dh100,000 and above, while those of one-bedroom flats have dipped to between Dh80,000 and Dh120,000 per year from the earlier rate of Dh140,000 to Dh180,000 annually. Two-bedroom apartments are now being rented for Dh120,000 to Dh190,000 per year compared with Dh220,000 to Dh260,000 five months back.

"I can tell you that rents in Abu Dhabi are now at least 20 per cent lower than the levels seen six to seven months back…The reasons are that many new buildings have been completed while several companies have moved their workers to Musaffah outside the city. Hundreds of villas and flats have also been completed in Sheikh Khalifa A and B City. All these factors have resulted in a sort of balance in the market and pushed down rents," said Ashraf Kamel, Manager of Gazal Al Jazeera Real Estate, one of the largest property agents in the UAE.

"But this is not enough. I think supply still falls short of demand which has remained high over the past three years because of an economic upswing, recent influx of skilled employees from Dubai to Abu Dhabi and high population growth in the emirate. This year, we expect the flow of expatriate population to Abu Dhabi to pick up because of higher oil prices. This will combine with high growth in the resident population to put upward pressure on the housing sector…but let us hope this will be offset by new projects outside the city," he added.

Prepared for high population growth

Abu Dhabi has one of the highest population growth rates in the world and expects its population to nearly triple at the end of its Vision 2030 development plan. Growth in its population has ranged between four and eight per cent over the past decade, peaking at nearly 1.55m at the end of 2008. Ministry of Economy projections showed the population surged by around 7.8 per cent to reach about 1.68m at the end of 2009.

In terms of per capita gross domestic product (GDP), 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. It is estimated to have reduced to Dh200,000 in 2009.

Abu Dhabi, which controls the world's fifth largest proven oil and gas deposits, also recorded one of the highest real GDP growth rates in the world during the 2001-2008 oil boom, according to official figures.

These showed average annual growth stood at around 13.4 per cent to push real GDP to a record Dh297.9bn in 2008 from Dh153.1bn in 2001. Growth was fuelled by a surge in oil prices and output, high public and private spending and a steady increase in foreign direct investment.

Despite the global financial downturn and the ensuing collapse in oil prices, Abu Dhabi said last year it remained committed to its long-term target of achieving annual growth of seven per cent in its economy.

Added said the industrial sector, covering mainly light and medium products, would play a vital role in achieving that target and diversifying the emirate's sources of income which are at present, heavily reliant on volatile oil sales.

Added's Undersecretary Mohammed Omar Abdullah said the growth target was in keeping with the Vision 2030 plan, which aims to attract investment, diversify the economy and cater to a steady and rapid increase in population.

"Vision 2030 has set economic diversification as the pillar of our economic plans during that period. We still aim to achieve seven per cent real growth in the overall economy and this of course, will help restore the balance to non-oil trade," Abdullah said at a recent conference in the capital.


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