Abu Dhabi’s residential real estate enters a challenging phase

PETALING JAYA: The residential real estate sector in Abu Dhabi is entering a challenging yet likely beneficial phase of its development in the aftermath of the global economic slowdown, according to publishing, research and consultancy firm Oxford Business Group (OBG).

In its latest briefing entitled “Abu Dhabi: Entering a New Phase”, OBG said prior to the global financial crisis, the emirate’s nascent real estate sector was buoyant, as a perennial shortage of units pushed up property and rental space.

“The real estate market in Abu Dhabi has changed a lot since the financial crisis,” chief executive officer of Hydra Properties, Ali Saeed Sulayem told OBG.

Many observers dismissed talk of the fractured global financial system affecting Abu Dhabi. In late 2008 however, it became all too apparent that the emirate’s housing market would not go unscathed.

Residential values and rent fell throughout 2009 but the rate of decrease slowed in the second half of the year.

According to CB Richard Ellis, rent in the final quarter of 2009 was still declining but at a more stable rate than at any point during the previous year.

With a standard unit attracting US$24,500 (RM83,337) to US$35,392 per year, 1-bedroom apartments were the least impacted, registering just a 4% drop compared to the third quarter. Other segments however, fell harder.

According to Abubaker Al Khouri, managing director of Sorouh Real Estate, lower rents in the neighbouring emirates are one reason why accommodation prices have decreased.

“Dubai has affected Abu Dhabi because a considerable proportion of the population has moved there to benefit from lower rents. It is one reason why rent here in the capital has come down a bit,” he told OBG.

Another factor is the new economic reality to which many people are growing accustomed. Employment market conditions have changed substantially, which has been reflected in housing allowances companies offer to their staff.

“Landlords are becoming more flexible in the prices they are quoting in reaction to the macroeconomic situation and employers are seeing that they don’t have to fund residential allowances to such a high level,” said John Bullough, chief executive of Aldar Properties, said.

However, this would not last long as more people are going to be attracted to the capital.

“The government has a lot of projects that will be issued in 2010, which will impact on the number of people coming to Abu Dhabi and the interest in the emirate,” said Ali Saeed.

Abu Dhabi’s economic outlook is very positive, not least due to its “strategic location, prudent government planning, diversification strategy and the basic wealth of the emirate”, said Bullough.

Nevertheless, liquidity and access to finance still remain tight, which is making work difficult for some developers, sub-developers and contractors.

For prospective homeowners, the banking situation is improving, although it still has some way to go.

“Interest rates are high at the moment but we are beginning to see them come down,” Philip Ward, the chief executive of Abu Dhabi Finance, said.

Ward added that lower rates are part of the equation when it comes to helping the development of the residential real estate market.

A host of new units due for completion in June, particularly in the high-end segment, such as Sorouh’s Sun and Sky Towers on Al Reem Island, may also be a shot in the arm for the market.

“The closer these projects come to being completed, the higher demand for them we’ll witness. This is because many people like to see the physical building before they buy,” Ward said.