Wednesday, May 24, 2017

Dubai: Abu Dhabi’s property sales market could soon start feeling the full weight of The Bridge, Aldar’s first mid-market development on Reem Island and where apartment prices start at Dh450,000. With Aldar confirming that more such projects are on the way, other developers in Abu Dhabi might have to change their strategies in order to stay competitive.

A further 8,200 units are likely to be added on Reem Island between now and 2020. And with The Bridge setting the marker for affordable homes in the city, property values in the secondary market could come under intense pressure going forward, particularly so on Reem. It was in April that Aldar released first two buildings forming The Bridge project and was met with an immediate sell-out.

Its launch prices were around the Dh900 a square foot mark, according to market sources. (Another three buildings within the cluster are being retained by the developer for the leasing market.)

And over the last month, the average price for apartments on Reem Island was at Dh1,253 a square foot compared with Dh1,266 over the a 12-month period, according to estimates by Cavendish Maxwell, the property services firm. With Aldar to pick up the pace in releasing new mid-market offerings through the rest of the year, Abu Dhabi’s secondary market activity could feel the squeeze.

As such, “Supply pressure will be felt more strongly on projects that are undifferentiated from the existing stock,” said Manika Dhama, Senior Consultant at Cavendish Maxwell. “That is, offering more of the same in terms of amenities, unit sizes and presenting plans that are weighted heavily towards pre-construction payments as opposed to post-handover.

“Developers need to respond to current consumer needs through planning more efficient designs and launching lower priced inventory, especially options targeted to end users.”

For insight, Abu Dhabi’s property market players just need to look at what Dubai experienced in 2015 and early 2016. At the peak of the market correction in Dubai, developers moved towards offering generous post-handover payment schemes and also started to push more affordable homes (in the range of Dh700 a square foot). The move certainly seems to have paid off, with the second-half of 2016 seeing a drop in value declines and, then, subsequent improvements in select locations.

According to Cavendish Maxwell data, nearly 1,900 new homes were completed in Abu Dhabi’s investment zones last year, with 90 per cent being apartments. The majority of the handovers happened on Reem Island and Abu Dhabi city.

In Q1-17, 83 per cent of units completed were apartments, with most of these being on the Corniche and in Saraya. “An additional 7,800 units [are] scheduled for delivery during the remainder of 2017, concentrated primarily in Abu Dhabi City and Al Reem Island,” said Lynnette Abad, partner and head of Property Monitor at the firm. (But given their recent track record, developers are unlikely to push strongly for a significant supply to come online at the same time and further depress prices.)

As their counterparts did in Dubai, Abu Dhabi developers — certainly those in the master-developer class — might need to play a waiting game.

Abu Dhabi’s residential rental market remains in a tight place

* A sudden and dramatic improvement in Abu Dhabi residential rentals seems unlikely. All of the prime locations continue to see declines, “from slow job growth and further redundancies,” said Manika Dhama of Cavendish Maxwell. “Areas with upcoming supply in the short to medium-term [such as Reem island] are expected to be impacted more. Occupancy risk will continue in larger units as senior level executives remain most impacted by readjusted employee benefits such as housing allowances.”

By Manoj Nair Associate Editor

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