Capital’s Housing Shortage to Continue in 2009

A shortage of available homes in Abu Dhabi has witnessed an increase in people buying homes in Dubai and commuting to their workplace 120km away.

The average shortage of homes in Abu Dhabi during 2009 will be 34,000 units according to Landmark Advisory, an expert in real estate research, has forced many Abu Dhabi workers to buy property on the edge of Dubai near The Marina and Discovery Gardens.

“Abu Dhabi has a chronic shortage of housing paired with relatively stable population growth,” says Jesse Downs, Director of Research and Advisory Services at Landmark Advisory.

“With the availability of finance being the main factor defining any recovery the early signs indicate that lending will improve earlier in Abu Dhabi than in Dubai.

“However, despite their differences, the Abu Dhabi and Dubai property markets are interdependent with many Dubai Marina and JLT residents working in Abu Dhabi and commuting every day.

“Rent cuts in Dubai are applying negative pressure to Abu Dhabi’s rent levels, as Abu Dhabi residents are increasingly attracted to the option of living in Dubai, but commuting to work in the capital.”

New Developments

The Landmark Advisory estimates that 14,500 units will be delivered during 2009 and 2010, with the first phases of main master developments like Al Reef Villas, Al Reem Island, and Al Raha Beach but said it is impossible to predict how many of these units will be available for rent.

“The Abu Dhabi market fundamentals are very strong in terms of demand and supply,” adds Downs.

“Our research indicates that even with a conservative population growth scenario of two per cent in Abu Dhabi this year, the total housing demand will reach 220,000 units.

“This is clearly higher than total supply, which we estimate at 186,000 units.”

Currently the average prices for one and two bedroom units in the leasehold market are Dh1,350 and Dh1,300 per sq ft, respectively.

One bedroom units in Abu Dhabi can be found from Dh 600,000 up to Dh1.7 million and two bedroom units range between Dh1.1m and Dh3m.

“Some owners will be end-users, while others will be investors intending to generate rental yields by leasing out the units to tenants,” adds Downs.

“Relative to the upcoming 14,500 units, 4,500 are available for purchase only for UAE nationals. The remaining 10,000 units will be available for foreign buyers as well.”

Price Correction

This means that prices in the Abu Dhabi market has suffered a significant correction since peaking in Q308 after falling five per cent to 15 per cent in Q408, with secondary market price declines accelerating in Q109 from 15 per cent to 20 per cent for apartments and 25 per cent to 30 per cent for villas.

The Landmark Advisory predicts that during the second half of 2009, average prices in Abu Dhabi are likely to fall further, though not as much as in Q109.

However, despite marginal declines, developments like Marina Square and Sun and Sky Towers are likely to maintain premiums over primary market prices, while Al Raha Beach prices are likely to stabilise at current levels.

Toward the end of 2009, those properties that are closest to completion are more likely to see some price increases.

House Price Index

According to a report by professional real estate advisors, Colliers International, the impact of the global economic downturn on Dubai’s residential property market is very clearly reflected in the first quarter results of its House Price Index.

Q408 saw the initial indications of a downturn emerging when the index recorded an average decline in house prices of eight per cent over the quarter – Q4 having been supported by and taking into account positive overspill from transactions

which occurred in late September.

“Despite this drop, average prices overall had still risen by 59 per cent over the previous 12 months (year on year results),” says the report published recently.

“Subject to the clear and unfettered influence of the Global Crisis the results for Q1 2009 show an 82 basis point decline from 199 to117 points, which represents a 41 per cent drop from Q4 2008.

“Also for the first time since the inception of the HPI, it shows a reduction in the year-on-year statistics, with a decline of 34 per cent in house prices overall since Q1 2008 – prices are currently at approximately Q2 2007 levels.”

Mortgage Requests Decline

The report also states that transaction volumes for new mortgaged requests and therefore acquisitions declined sharply compared to previous quarters.

There was also a significant fall in the volume of cash transactions and properties being refinanced but not to the same degree as new mortgage applications.

Dubai and Abu Dhabi are different markets. So far in Abu Dhabi, no properties have been delivered that are available for foreigner ownership. More than that, market dynamics differ in terms of Abu Dhabi’s persistent demand surplus and supply deficit.

But Downs warns that with a recovery imminent in Abu Dhabi prices would not be the same as they were last year.

Property market recovery

“Abu Dhabi’s property market is likely to start recovering as soon as financing becomes more available and the first leasehold units are delivered. However, recovery will not mean a return to price and rent levels seen during 2008,” she says.

“Going forward, prices will be defined according to product quality.

“Whereas pricing was historically homogenous, we expect future prices to increasingly correlate with location, community amenities, and build quality.”

Downs says the onus now and over the next three years would be on quality factor when most completed products are delivered.