Opportunity to fill Abu Dhabi ‘affordable housing' gap, says Cluttons

ABU DHABI (Dec 8): The lack of affordable housing in  provides a major opportunity for developers to fill the gap with ‘genuine affordable’ housing, said international real estate consultancy Cluttons in its Abu Dhabi 2015/16 Winter Property Market Snapshot. Also, “affordable housing” legislation “could be a game changer”.

“New planned legislation around fixed quotas for ‘affordable homes’ may help to ease access to the property market; however” more details are yet to be confirmed,” the report stated.

Cluttons highlighted the growing problem of a lack of affordable property in Abu Dhabi, with a 34% increase in average house prices since 2010.

“This issue of affordability has been building for some time, initially following the introduction of the Federal Mortgage cap and doubling of property registration fees,” said Cluttons Abu Dhabi head Edward Carnegy, adding that these measures cooled the market but limited people’s abilities to become owner occupiers in the long term due to them having to pay premium rents.

“This presents a major opportunity for developers to deliver housing that is ‘genuinely affordable’, [...] of a high quality, with the potential to offer flexible access to home ownership through models such as ‘rent-to-own’,” he added.

According to Cluttons head of research Faisal Durrani, the average expat household looking for a home in Abu Dhabi has to contend with an average annual rent of AED204,000 against an average household income of AED199,000.

“There are signs that a liquidity crunch may be bubbling away in the background,” said Durrani, adding that the National Bank of Abu Dhabi reported a AED56 billion decline in government deposits between September 2014 and September 2015 across the UAE banking system, making it likely to curb mortgage lending and disabling homeownership for many.

During the third quarter, average residential capital and rental values stagnated, driving the annual rate of change down to 1.7% and 2.9% respectively. Average residential capital values are at AED 1,336 psf.

Durrani stated that this was due to the strength of capital value growth in recent years and the shortage of rental market stock, pushing households to peripheral locations in search for better value for money.

The slowdown in the residential market was also filtered through from the halving of oil prices over the last 18 months, subsequently impacting the job creation rate.

“The depth of demand for something ‘affordable’ is reflected in the fact that three-bedroom villas in Hydra Village, for instance, recorded an extraordinary 32% uplift in rents between January and September, compared to just 2.5% for the emirate as a whole,” Durrani added.

Meanwhile, the office market remained steady in 3Q2015, with Abu Dhabi Global Market Square still commanding the city’s highest premiums. However, Carnegy said that this stability will face increased pressure over the next six months as the hydrocarbon sector contracts further. “This could lead to oversupply in the market, not from new space, but from consolidation by corporates returning existing space back to the market.”