5,000 new flats to push rents down on Abu Dhabi's Reem Island

The number of completed apartments in the Shams area of Reem Island is set to nearly quadruple this year, developer Sorouh says.

Sorouh, the developer of the Sun and Sky towers on Reem Island, expects to put 2,133 flats in The Gate on to the rental market. Micaela Colace for The National
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The number of completed apartments in Sorouh's delayed Shams area of Reem Island is set to nearly quadruple this year as 5,000 new homes come on stream and construction starts on 800 more.

The number of habitable flats in the 579-hectare district will increase from 1,800 at present to 6,800 by the end of the year, according to Sorouh, the master developer.

The Gate project, which was delayed following the financial crisis, is now set to complete at the end of the third quarter.

It will deliver 3,533 flats to the market. And subdevelopers will finish a further 1,500 apartments this year as five more projects - Reem Diamond, Mangrove Place, Beach Terrace, Al Rifaq Tower and Oceanscape Tower - are all slated to complete this year.

"Developments that commenced three years ago are now coming to completion. Soon there will be handovers. There will be more people coming in and living in Shams and hence there will be a greater generation of a community," said Gurjit Singh, the chief operating officer of Sorouh. He is to become the chief development officer for Abu Dhabi mega developer Aldar Sorouh, which will form after Sorouh merges with Aldar later this year.

Sorouh said that it would initially put up to 2,133 unsold flats in The Gate on to the rental market - something the developer said could push rents in the area lower. Units from the other developments may also come on to the rental market.

"I would think with perhaps 5,000 more units coming onto the market, we have to be quite realistic," Mr Singh said. "Our rentals may have to come down a bit so we are able to compete in the market and so we have a first mover advantage in trying to get the tenants into our developments."

In January Sorouh agreed to sell between 700 and 800 flats in its 3,533-unit The Gate along with infrastructure works to the Abu Dhabi Government for Dh3.2 billion (US$871 million). The developer said it had not sold any flats in the project to private investors since 2009.

"Our focus has been on delivery and I think when we get closer to delivery we will see the market coming back for sale," Mr Singh said. "For sales we have to build up a sufficient amount of interest in the property's rentability and then as an investment you will find people will then want to come and buy because you have a rental momentum. It's not an off-plan sales market any more. A tax-free yield is very attractive. Initial yields for a two-bedroom flat in Abu Dhabi ranges between 6 and 7 per cent. That's a margin of 450 basis points over a 10-year bond."

Sorouh said about 25 per cent of the vast Shams project is now either developed or in the process of being developed while infrastructure in the area was complete. A new public beach and the Repton School for 520 students will open by the end of the year.

The Dh25bn Shams development was intended to house 53,000 people, but construction was hard hit by the financial crisis.

Although Sorouh sold more than 100 plots of land to subdevelopers before 2009 and work started on more than 10 developments, to date just three have completed - Sorouh's Sun & Sky Towers, Dhafir Development's Amaya Tower and the AJZ Tower.

Many of the others stand vacant and empty, their stalled concrete frames a stark reminder of the millions of dirhams still owed to the off-plan investors.

These include the six towers of the Tameer Towers project, which Sorouh signed an agreement to help to complete in 2008 as part of a Dh6bn agreement with contractors.

"The timeline for Shams has certainly become extended. The developers again have to respond to the market and we are still in a cycle which is still looking for a firm bottom," Mr Singh added.