Abu Dhabi property market to recover

ABU DHABI: Economic expansion and upcoming real estate regulations look set to help Abu Dhabi's property market, Oxford Business Group said in its latest economic update.

Abu Dhabi's property market has faced the situation where lower investor demand and an increase in residential and office supply have combined to encourage a drop in rental rates.

"One of the reasons for this change in fortune is the supply of completed housing stock outside Abu Dhabi Island in places such as Al Bandar and Al Raha, as well as many individual buildings," it noted.

The municipality and the Department of Economic Development have not officially announced the changes yet but some businesses are beginning to hear about the planned regulations while applying for commercial licence renewals.

Al Reem Island, which has been dubbed a landmark project for the capital, is expected to begin releasing apartments in long-delayed developments such as Marina Square and Sun and Sky Towers in the coming months. With this new housing coming on-line, prospective homebuyers are sitting tight in the hope that prices drop further or until they can see the finished product.

The office segment also expects to see an additional supply over the next 24 months. Increased inventory has meant office lease rates dropped approximately 13% in the last quarter of 2010, according to research by commercial property advisor CB Richard Ellis.

"With more than 1.2 million sq m of office space due to be released in the next two years — a 50% increase on the current 2.2 million sq m — the market looks set to be especially competitive. Government regulations to move small businesses working out of villas in the capital into office towers should help to fill this space, however," the report added.

Commercial businesses were allowed to operate in villas, according to the Municipality of Abu Dhabi, but complaints about parking and traffic in residential areas have resulted in a policy rethink.

Prior to the global economic crisis, Abu Dhabi's landlords enjoyed some of the highest yields in the world. Property investors still achieve a healthy yield compared to mature markets, particularly on quality buildings, but the heady days of 2007 and 2008 where spectacular returns were the norm are over.

Abu Dhabi residential rents fell by an average of 14% last year, but certain locations experienced drops as high as 35%, according to real estate services firm Jones Lang Lasalle.

The real estate regulatory environment in the Middle Eastern country has been a hot topic in recent years, with industry experts calling for improvements to boost investor confidence. The Abu Dhabi Executive Council had in the fourth quarter of 2010 issued Resolution No 64 in a bid to increase transparency by regulating property registration rights across the emirate, which means all real estate transactions related to property ownership, land development lease and mortgage contracts must be registered.