Property prices up 53 per cent

Nathalie Gillet

• Last Updated: May 27. 2008 12:55AM UAE / May 26. 2008 8:55PM GMT

Research by property consultants Colliers International shows that occupancy levels have reached 98 per cent in the capital. The National

The sales price of residential houses and apartments in Abu Dhabi has risen by 53 per cent in the year to April compared to 18 per cent for the same period a year earlier.

Research by property consultants Colliers International found that occupancy levels had reached 98 per cent in the capital and that rents for new leases would continue to increase as the market remained undersupplied for the next three years.

It said an additional 100,000 units were required by 2010 to absorb excess demand. Between 2011 and 2013, as many as 140,000 additional units could be delivered, the report said. However the market was unlikely to become oversupplied because of probable development delays and rising levels of foreign ownership, the report added.

It noted three major concerns with the Abu Dhabi property market: the market was too heavily weighted towards high-end developments; uncertainty about the role of the newly created Abu Dhabi Commercial Properties’ (ADCP) plans to introduce additional supply; and the likelihood that residential components within master-planned developments could be scaled back to comply with Plan Abu Dhabi 2030.

ADCP is the commercial arm of Abu Dhabi Commercial Bank and won the contract from the Government’s Khalifa Committee to manage the emirate’s entire portfolio of property projects, totalling about 3,500 units.

Despite the property and construction industries’ rapid growth in the past three years, the market remained largely undersupplied, Colliers’ Abu Dhabi Real Estate Overview found. The occupancy rate in the city’s current 180,000 residential units stands at 98 per cent, while the population grew by 6.8 per cent last year.

Abu Dhabi’s Urban Planning Council (UPC) estimates that 1.3 million residents will live in the city by 2013, compared to 900,000 today. Forthcoming supply estimates, however, cannot take into account projects in Al Raha Beach, Al Reem Island and Saadiyat Island, as these may only become available post-2010, meaning that market undersupply is set to continue for the next three years. Rental prices rose on average by 22 per cent between April last year and this year, while land value increased from an average of US$540 (Dh1.900) per square metre in 2005 to $1,100 per square metre last year.

“Abu Dhabi’s recent price rises have been also fuelled by credit availability and an easy money policy,” said Giyas Gokkent, the head of research at the National Bank of Abu Dhabi.

According to Colliers International, Abu Dhabi’s share of the UAE mortgage market is forecast to increase by 22 per cent this year from five per cent in 2007.

Investment activity was dominated by UAE nationals last year, while the secondary market is still in infancy in the emirate, with investors holding on assets. Reforms aimed at widening the scope of foreign ownership to stimulate demand are expected in the near future.

Karen Lay, the marketing manager at LLJ Property, said: “In 2006, we were selling property on the primary market on Reem Island for Dh900 per sq foot, sold today on the secondary market for Dh1,700. Now prices have reached Dh2,500 on the primary market. The Plan Abu Dhabi 2030 also generated a boost in market confidence as people can see that Abu Dhabi is thinking long term and knows where it is going.”

The commercial property sector also faces significant under supply. Colliers found it had an average occupancy rate of 99 per cent in the total 1.4 million square metres of Net Leasable Area (NLA) within the emirate. Rents are also anticipated to rise even further in the next two years. Class A sales prices averaged $7,450 per square metre per year. Class A status is rated as premium property with a strong location, high quality finishing and good ICT.

The report found that demand in the commercial sector was mainly stimulated by multinationals establishing subsidiaries in Abu Dhabi, expansion of existing organisations in the context of continued economic growth in the emirate and economic diversification (services, finance and industry), as well as prospects of further regulatory reform.

Office space remains concentrated in high-density areas north of Abu Dhabi Island. However, the research predicted that forthcoming supply beyond 2010 would fragment with the completion of office developments in Al Raha Beach, Al Reem Island, Between The Bridges and ADNEC Capital Centre. The UPC’s Abu Dhabi 2030 Plan envisages a long-term consolidation of office space into the Sowwah Island financial centre and Capital District, located at opposite ends of the expanded city.

It added that current rental and sales prices in the commercial sector fell thanks to the seven per cent rental cap last year. This was subsequently revised to five per cent.

ngillet@thenational.ae