Abu Dhabi rents jump 24%

The biggest rent hikes were for villas, with a 57% year-on-year rise. Occupancy levels of close to 100% make finding accommodation virtually impossible.

The local rental cap appears to be having very little impact on holding down rents. The rapid turnover of tenants allows landlords to adjust rents to market prices.

Supply of property is the main issue in the UAE capital. A building moratorium in the late 1990s has left a legacy of undersupply, and the mega-projects underway have yet to deliver anything more than a few hundred villas and no new apartments.

The first apartments should receive a rapturous welcome in autumn 2009, but in the meantime local residents have to huddle into crowded accommodation or commute from neighbouring Dubai - not an attractive option in the hot weather on dangerous roads, but many do it daily.

Apartment rents

Three bedroom apartments in up-market locations like the Corniche, Khalidiyah or the Tourist Club now have average rents for three-bedroom apartments of $76,700, $68,500 and $52,000 respectively. One bedroom apartments in the city centre range from $16,500 to $33,000 annually.

But it is villa rents that have shown the highest increase in the past year, averaging a 57% rise, and overshooting Dubai prices. Expect to pay $123,000 per annum for a five-bedroom villa compared to $85,000 in Dubai, and $71,000 for a three-bedroom villa against $55,000 in Dubai.

For investors these rentals factor in some juicy potential rental yields, and are driving off-plan prices through the roof in anticipation of high rental returns.

As with Dubai four years ago it looks as if villas will prove a better buy than apartments in terms of price appreciation in Abu Dhabi. There are less of them being built, rents are soaring and the demand for villas is high.

Villa restrictions

But villa sales are restricted solely to UAE nationals in Abu Dhabi because only they are allowed to own freehold. Apartment sales are, by contrast, open to all on long leases. In Dubai expatriate residents are able to buy both freehold apartments and villas.

From a practical point of view leasehold is valued differently to freehold, but it makes little difference to most investors, though banning non-nationals will restrict the number of buyers in this market.

At the moment that clearly makes no difference to the villa market, and a repetition of the Dubai phenomenon of an initial undervaluation of villas relative to rental income and market demand is observable. Yet the overall conclusion from surging annual rents in Abu Dhabi is simple enough, this is the time to buy before prices go up again.