Residential realty in Abu Dhabi sees 100% rise in prices

Tuesday, December 16, 2008

Residential real estate prices in Abu Dhabi have increased 100 per year-to-date (YTD) in 2008 and is set to increase further by around 15 to 20 per cent next year, owing to a large undersupply of residential units until late 2009, said a report.

"In Abu Dhabi, there will be no major new additions of residential units before late 2009 and the city has been recording a growth in demand for real estate," said the UAE yearbook research report by EFG-Hermes.

Commercial selling prices also rose by 42 per cent YTD in Abu Dhabi, considering the market is at a much earlier stage of development and limited history of selling prices and a relatively low liquidity in the secondary market.

Further, the gap between office rents in Dubai versus Abu Dhabi has narrowed primarily due to supply constraints that have pushed up rates in Abu Dhabi.

Dubai remains one of the world's most expensive business cities, with an average rent of Dh574 per square foot, almost as high as Singapore but lower than Dh603 a sq ft in London.

"Due to lack of transaction information, we base our analysis on Abu Dhabi on attending sales launches and speaking with brokers and other industry professionals and with developers, said the EFG-Hermes report.

Dubai real estate prices will peak in the first half of 2009 and then decline by 15 to 20 per cent by 2011. The market for housing and rental projects in Dubai looks set to move towards the more affordable segments and will record a more sustainable pace of development in the emirate.

Prices of off-plan developments in Dubai have risen by about 30 per cent over the first six months, driven mainly by the desirability of certain locations, by expectations of strong yields and by a paucity of supply.

Sentiment has been quick to turn, with investors adopting a more risk-averse attitude and steering clear of all cyclical sectors.

The combination of increasing fears of a softening in the property market, regulatory attempts to curb speculation and a series of corporate scandals and arrests has hit hard.

"We understand that like Dubai, the capital city is experiencing some weakness, albeit to a lesser extent.

"Sales activity has slowed versus the first half, and developers are cautious in releasing new product, suggesting that market's appetite is being tested," said the report.

Property prices should hold up in the long term in Dubai if immigration continues, liquidity is made available at both the retail and corporate level, the legal standing of property ownership and transactions continues to improve, payment plans friendly to end-users become widespread, and investment funds are set up in the emirate.

EFG Hermes maintained, there is room for an orderly rotation from a speculative to more end-user driven market in Dubai, with buyers paying greater attention to quality, location, the track record and reputation of the developer in the UAE and other markets, the transparency of the marketing and legal efforts, and the timely completion of units, with the end-product reflecting the original promise.

The report said majority of the supply in 2009 in Dubai would come from Union Properties.

During 2008, Union Properties focused on property development and continued selling units in its freehold projects.

"We estimate that 85 per cent of its total inventory is now sold out. Visible construction progress has been made on all its projects, with a ramp up in efforts towards completion of the Formula One Theme Park, which is expected to be operational in 2009, said the report.