Property consultancy says only half of planned residences will be completed in next four years.
Delays result in Abu Dhabi housing shortage
The slowdown in the property market is taking its toll on developers in Abu Dhabi and only 45,000 homes will be completed in the capital in the next four years, half of what was originally expected, according to a property consultancy. The downwards revision of expected housing supply by Jones Lang LaSalle (JLL) could mean that rents remain high for longer than expected amid a continuing housing shortage. That may present a short-term challenge to the Government's plan for rapid economic and population growth.
"Some of the big developers are reassessing their schemes and smaller developers are facing difficulties," said David Dudley, the head of the Abu Dhabi office of JLL. "Much of the stock that the Government thought was going to come on stream over the next four years is not going to come. It's going to take some time before [the developers] get moving again." The housing supply estimates were based on a project-by-project analysis by JLL, Mr Dudley added.
The residential construction delays are the result of a shortage of financing available to developers and continuing investor caution after prices fell by 50 per cent in some areas of the city, he said. Many developers relied almost entirely on pre-sales, also known as off-plan sales, to fund their projects, but these have disappeared from the market since prices fell. At the same time, some buyers stopped making payments on homes yet to be completed because they were already worth less than they agreed to pay for them.
Rents in Abu Dhabi remained stable in the third quarter while prices in Dubai have continued to fall sharply, according to the property broker Landmark Advisory. The prospect of more construction delays in the capital means that its congested rental market is unlikely to see any relief soon. "Rents will not go down as much as they should if supply is stalled," said Mr Dudley. Aldar Properties, the Abu Dhabi-based developer, expects the housing shortfall in the capital to stand at as many as 15,000 units next year, it said earlier this week.
The slowdown in construction could delay the implementation of Abu Dhabi Plan 2030, a blueprint for expanding the city in the next two decades. It may also create obstacles to economic growth if companies cannot find adequate affordable housing for their workers. Tight availability of apartments and comparatively high rents are already encouraging many people to rent cheaper accommodation in Dubai, said Adel Hamaizia, the business development manager of Re/Max Abu Dhabi, a property broker.
One of his clients was offered an annual rent of Dh180,000 (US$49,012) for a two-bedroom apartment on Muroor Road in Abu Dhabi versus Dh120,000 for a similarly sized home on Dubai's Palm Jumeirah island, he said. While an average-quality two-bedroom apartment in Abu Dhabi currently rents for between Dh160,000 and Dh180,000, its equivalent in Dubai costs between Dh100,000 and Dh120,000, according to the broker.
The downturn has created unprecedented opportunities for investors and developers who are willing to help fund projects or partner with other developers to finish them, Mr Dudley said. "There's a big gap in the market for groups coming in with funding and development expertise," he said. "The market is going to grow substantially over the next four to five years. There is a need for this housing and capital values are going to be rising."
Several companies have announced plans to create distressed asset funds, called "vulture funds", in the past six months to buy up property and invest in stalled projects. Hines Interests, the US-based developer and investor, said it was considering a $1 billion fund with cash from regional investors and some debt. Despite sharp declines in property prices this year, Aldar, the emirate's largest developer, is hopeful of improving conditions.
"The worst appears to be past us," said Shafqat Malik, the chief financial officer. Aldar reported a 43 per cent decline in third-quarter profit on Tuesday. Mr Hamaizia said his company was starting to see inquiries pick up after a long quiet period. "We have excessive demand, a deficit in units and growing employment in everything from health care to education," he said. "Confidence is higher here than elsewhere in the region."