Oct 21 2012
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Abu Dhabi rents to continue falling
But government report says property market remains undersupplied
Higher supply and lower rents in Dubai will be among the key factors that will further depress rents in the capital that has seen a steady decline in the property market along with other emirates and Gulf countries since the 2008 global fiscal distress.
The study by the Abu Dhabi Urban Planning Council (UPC) said the emirate's residential market is currently experiencing a shortage of supply, with insufficient units to meet the demands of the current population mainly for the lower income groups.
While the construction industry has responded to the current shortage with the announcement of many new projects over the past two to three years, much of this announced supply has been delayed or placed on hold due to the effects of the market downturn, the tightening of liquidity and developers being previously overly reliant on pre-sales for fund development, the report said.
The recent speculative boom saw residential sales prices peak in 2008, before declining dramatically in 2009, said the report, which was released this week.
"Residential rents might continue to decline in Abu Dhabi, due to a number of factors including the impact of rent decline in Dubai and increasing supply," it said.
"This adjustment in Abu Dhabi rentals will be a key to unlocking the current latent demand owing to a reduction in the propensity for multiple households to share a single residential unit. As Abu Dhabi's rental premium over Dubai residential rentals fall, the level of commuting from Dubai to Abu Dhabi will drop, further unlocking latent demand."
The study said that with more new supply becoming available and as rents decline, residential tenants will have more choice.
As a result, many tenants are expected to trade-up from shared accommodation into single occupancy units, creating a price driven increase in demand, it added.
"There remains a mismatch between the positioning of the current supply (much of which was planned to target speculators and higher end product) and the majority of end user demand (which is greatest in the lower and mid market segments)," it said.
"While many developers are currently reviewing and re-positioning their project pipeline to increase the supply of lower and mid market product for end users, there is expected to be a continued shortage of lower and midmarket housing stock for the next three to four years. The upscale market will witness significant levels of additional new supply in 2010 -2011, with the completion of the first projects at Reem Island and Raha Beach."
The repot showed that as of 2009, the total stock of housing units in Abu Dhabi stood at 177,400 units. "The residential market is currently under-supplied with prime locations commanding very high rents and operating at nearly 100 per cent occupancy, with many families sharing apartments and villas that were originally designed for single
family occupancy," the study said.
It noted that the delay of many of the announced residential projects in Abu Dhabi has mitigated the potential over-supply which would otherwise have occurred in 2012/2013.
As a result of many projects being delayed or placed on hold, additions to supply will be relatively modest from 2010 to 2013 compared to developer announcements, it said.
"Rapid economic growth and employment creation has resulted in an unprecedented population boom in Abu Dhabi in recent years. While the resident population of the Abu Dhabi metropolitan area (969,000 in 2009) remains low compared to other prominent regional and global cities, the population has been increasing at a relatively rapid rate (4% pa between 2001 and 2009)," the study said.
It showed that the average household size in Abu Dhabi is estimated to be 4.3 (based on averages of 3.5 for expats and 6.5 for nationals).
This results in demand for around 226,000 units in Abu Dhabi metropolitan area, it said, adding that since the number of households exceeds the total supply; there is currently more than one household per unit across Abu Dhabi, it said.
"There are three major drivers to the potential future demand for residential units in Abu Dhabi - total population, average household size and propensity to share ratio," it said.
"Based on these factors, the total demand for residential units is forecast to reach 278,000 by 2013 - an increase of approximately 52,000 units from 2009. This figure is still higher than the anticipated supply by 2013, which is forecast at 250,700 units, illustrating a deficit of approximately 26,300 units.
© Emirates 24|7 2012
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