The Abu Dhabi real estate market saw some good and not so good times last year. While sales prices in the Abu Dhabi residential and Abu Dhabi commercial segments have pretty much remained flat since the end of 2014, the Abu Dhabi renting sector saw a rise of close to 7 percent in some areas in 2015, according to market reports.
So, how will sales and leasing markets in Abu Dhabi perform this year? Let’s take a look.
As for new units coming on to the Abu Dhabi market, there doesn’t seem to be much to expect this year in terms of prime, affordable housing initiatives. While numerous projects such as Mamsha on Saadiyat Island, Ansam, Mayan and West Yas on Yas Island and Al Hadeel on Raha Beach are being planned, these are not expected to come online until next year. In fact, third-quarter 2015 reports state that only 2 to 3 percent will be added to the total housing stock every year over the next two to three years in the capital.
On the other hand, leasing demand in the Abu Dhabi residential market has remained strong, with rents witnessing a spike of 5 to 7 percent last year. Recent data reveals that rents are expected to witness an increase of 4 to 5 percent this year. Factors that have contributed to this rise may have been low supply together with an increasing population, as according to the Statistics Centre in Abu Dhabi, the average annual population growth rate over the last eight years has been over 7 percent. The outlook for the economy also seems positive with the IMF’s latest reports suggesting that the UAE economy is anticipated to grow by 3 percent this year.
A long awaited property regulation has been brought into effect and could aggravate the undersupply. The new law focuses on developers and investors, and has been initiated to enhance transparency in the market and thereby make it more attractive for investors. As per the ruling, developers have to meet new requirements for licensing and act swiftly to adhere to deadlines imposed by the law if they are to avoid penalties. The regulation may make developers cautious and make development less likely to occur, especially in prime areas. Furthermore, a rental index based on indicators such as location and number of bedrooms similar to RERA’s Rental Index may be in the works; however, there has been no indication as to when it will be announced or implemented so far.
A question that’s on everybody’s mind is how oil prices will affect the Abu Dhabi commercial and Abu Dhabi residential real estate markets. The oil price decline has led to a reduction in government spending with regard to future projects, softening investors sentiments due to lack of supply. While continued increases in leasing prices should lead to rises in sale transactions, this doesn’t seem to be organically developing. However, we think that continued rent rises may lead to investors and end users jumping in to take advantage of high yields and control rents. Moreover, as the population rises, rents will rise and returns will keep looking good. This will in turn have buyers coming back to the market to cash in on savings.
However, if the Abu Dhabi government spending takes a cut and companies lay off employees, then the population is likely to stagnate, giving way to bloated housing inventories which may in turn cause sale and rent prices to fall. So it seems like market stability will be dependent on the government continuing to invest in major new infrastructure and economic development projects.Hence, how the market will perform will depend on a myriad of factors. We’ll have to wait and watch.