A growing population, proactive government legislation, sustained investment in new developments and a forward-thinking urban planning authority are some of the important factors that are putting Abu Dhabi's property market on the right track for growth.
Demand for residential property, in particular, is expected to rise, overcoming an anticipated slowdown in government spending this year due to the recent de cline in oil prices. According to analysts, the demand is so strong that new projects are being lapped up as soon as they are opened to investors. Aldar Properties recently announced that all 281 of its plots at the Al Merief master-planned residential community for Emiratis in Khalifa City were sold within a week.
Furthermore, demand for good-quality housing across all price points has been fiercer than ever, driven mainly by the rapid growth in the capital's international workforce, say analysts.
Additionally, the removal of the rent cap and the significant number of government employees relocating to Abu Dhabi to qualify for a housing allowance have also resulted in a strong rental market in the past two years.
While residential property has been in focus, commercial property is fast catching up, even though it is currently characterised by a shortfall in supply.
David Godchaux, CEO of Cushman & Wakefield Core, tells that ease of mortgage is another factor driving the demand for property in the capital. Abu Dhabi Finance, for instance, offers mortgages at 2.99 per cent, with no processing fees or salary transfer and payment holidays.
'With attractive mortgages, it makes perfect sense for residents to buy instead of rent,' says Godchaux. 'Having said that, whether they actually do that or not depends substantially on job security. With oil prices low and talks of oil and gas companies reducing staff, end users may choose to rent in the short term.'
Given the demand drivers in the residential space—upgrades, increasing population and regulations — it's fair to say the Abu Dhabi market is driven by end users. Ameen Al Qudsi, CEO of Nationwide Middle East Properties, says that 70 per cent of buyers are seeking primary residences and 30 per cent are investors.
Godchaux says, 'Historically, Abu Dhabi has had a healthy split between end user mortgage buyers and investors. In case of locations where rents are very high such as Al Raha Beach, the proportion of end users is high, whereas Reem Island, which is closer to the city, has more investors looking for a rental yield.'
Affordability
However, it's not cheap to buy residential property in the capital. Faisal Durrani, International Research and Business Development Manager of Cluttons, tells Property Weekly, 'It's hard to put a percentage between the spilt of buy-to let investors and genuine end users, but experience would suggest that the two are fairly balanced. It is fair to say that the strong 14 per cent rental value growth over the past two years across the city's freehold sub-markets has put household finances under pressure, which has, in turn driven up the desire to transition from rented accommodation to owner occupation.
'With the introduction of the Federal Mortgage Caps, coupled with the 24 per cent rise in house prices last year, some households are left with little option but to rent for longer. But the desire to buy has not diminished.'
As the government continues to invest in multibillion-dollar infrastructure and economic diversification projects, demand for residential property continues to rise, particularly for mid-level and basic staff housing.
Godchaux says, 'We've seen a lot of demand for accommodation for mid-level staff [in sectors such as] entertainment, hospitality and leisure.
'Given that the tourism industry in Abu Dhabi is developing [further], we will start to see developments accommodate for this and we have already been working with several hotels and entertainment and leisure companies looking to find bulk deals for their staff—contrary to what we see in Dubai.'
Affordability is becoming more and more important, not only in Abu Dhabi or the UAE, but across the world. Durrani cites Dubai Municipality's plan to enforce affordable housing quotas for new projects, aimed at those on monthly salaries between Dh4,000 and Dh12,000.
'The focus in Dubai and Abu Dhabi has always been the luxury end of the market,' he says. 'However, there is a huge untapped middle market, where households are aspiring to move into owner-occupation, but are held back by regulation, affordability and the difficulty in securing debt financing.
'With rents across the UAE in general rising well above the rate of wage growth, the market for affordable housing continues to balloon. It would be good to see a move at a federal level to see the official introduction of affordable housing quotas. These will be very well received and will also boost the country's appeal to larger institutional funds, should this new class of housing be introduced.'
Commercial projects
According to a January report by property consultant Land Sterling, 'Prime office space continues to command premium price owing to its limited availability, with Al Nahyan Camp and Tourist Club areas realising a year on-year growth of 44 per cent and 35 per cent respectively.'
In Dubai, too, there is a growing pent-up demand for commercial, logistics and corporate developments.
However, Al Qudsi says, '[Commercial developments] have gained more interest and Abu Dhabi is focusing a lot on such developments. [For new developments] roughly the numbers stand at 60 per cent residential and 40 per cent commercial [10 per cent retail, 20 per cent corporate and 10 per cent warehouses].'
Legislation
Various stakeholders from key sectors are keen to ensure that the current mar ket continues to grow at a sustainable rate, whether in terms of economic cost-effectiveness, legal protection for investors, ease of living or environmental costs.
Abu Dhabi opened its property market to foreign investors in 2005 with the implementation of Law No. 3, which provided the regulatory guidelines for real estate and established the city's Land Registration Department, and Law No. 19 on property ownership.
According to lawyers Al Tamini and Company, 'Law No. 19 introduced the creation of Investment Zones in which GCC and non-GCC nationals were entitled to real property rights, which, as a fundamental difference to Dubai, specifically exclude ownership rights to land for foreigners. The laws have established legal principles, but do not yet have sufficient teeth to enable full implementation.'
In January, the Abu Dhabi Global Market (ADGM), the capital's financial free zone on Al Maryah Island, released draft real estate and strata title regulations. Once approved, the regulations will open freehold property to all foreign buyers. Durrani says, 'For a newly emergent market such as Abu Dhabi, any move to bolster the rights of investors in black-and-white legislation is always a good thing. From a residential perspective, the ability to set up owners' associations [OAs] and take decisions on the maintenance of common areas and choose suppliers for property management services is a positive move. The more freedom investors are offered, the higher the investment appeal of a location.'
However, Godchaux says implementation is key in a market where title deeds are not yet available in most cases. 'Changes have been proposed in Abu Dhabi with the ADGM, including strata laws as part of its real estate laws. This enables the setting up of OAs, making escrow accounts mandatory, providing rules for ownership of common areas and protecting investors. Once these are all in place, it is expected that the inherent risk in investing in off-plan strata property will reduce.
'Since these laws will be based on common law or will resemble legal systems used in the West, it is expected that international investors will be attracted. The transparency will also attract risk averse domestic investors.'
Clarity in legislation will impact not only residential but commercial and office property too. 'The situation is slightly different on the commercial front. We have seen situations in Dubai where strata ownership and regulations have left several buildings unoccupied for years due to the complexities of negotiations with multiple landlords for larger international occupiers. It will be interesting to see how this plays out in Abu Dhabi,' says Durrani.
Planned development
Sustainability is the other point on Abu Dhabi's checklist, along with planned urban communities. Anthony Mallows, Director of Masdar City, says sustainability is in fact a cost-effective tool. 'For a long time, building sustainably was prohibitively costly, particularly in the GCC where there was a short supply of low-carbon, sustainable building materials 'Now, architects, developers and urban planners have access to better resources, new technology, support from the Abu Dhabi Urban Planning Council [UPC] and our 'greenprint' to ensure they can be as sustainable as possible.'
At the recent Government Summit in Dubai, Falah Mohamed Al Ahbabi, Director General of UPC, spoke of the importance of public transport for ensuring sustainability in a city, along with creating comprehensive communities.
'Transportation takes us from point A to point B. What if we decide to link point A or B or make them closer by taking housing units closer to the business place? If we're connecting these two points through cars and public transportation and if the distances are bigger, we'll have traffic,' said Al Ahbabi. 'If we narrow the distance, there will be an improvement. We're talking about an integrated city with comprehensive services that provide daily user services in a close location.'
Mallows says that such focused interest from the government ensures projects will factor in sustainability on all counts. 'These make it possible to construct high performance buildings such as Masdar City's Siemens Leed Platinum building and the 4-Pearl Irena headquarters, the first office building in Abu Dhabi to achieve this certification.'
Investment Zones in Abu Dhabi - Below are areas where residents from GCC countries can buy freehold property. Other nationalities can buy property on long-term leases of up to 99 years:
- Reem Island
- Raha Beach
- Al Reef
- Seih Sediera
- Masdar
- Yas Island
- Saadiyat Island
- Lulu Island
- Al Maryah Island
- Hydra Village
Investment overview
In a presentation at Cityscape Abu Dhabi, David Dudley, Regional Director — Middle East and North Africa at JLL, provides an outlook for investors:
- Abu Dhabi and the wider UAE remain a safe haven for investment relative to other parts of the region and offer high-quality real estate in master-planned areas.
- Value performance varies significantly from sector to sector, location to location and scheme to scheme, so while investment opportunities exist across each sector, it is important to be selective.
- We expect a two-tier market with significant divergence between high- and low-quality product (in terms of location, design, functionality, meeting end-user requirements, asset management, etc.).
- Sustained market recovery is dependent on government maintaining a balance between demand and supply.
- The medium-term outlook remains positive, driven primarily by major government-backed economic development and infrastructure projects.