Abu Dhabi property price increases 'certain'

According to the report, rents in the emirate are set to increase by 25% by the end of 2008 as the UAE's capital continues its real estate boom.

The next two years will see enormous growth, fuelled by high profile developments, a recent wave of investments, increased economic liberalisation and demand continuing to outstrip supply.

The residential real estate market in particular is expected to see a surge in prices as no further large-scale development announcements are expected until the end of 2009 at the earliest.

Investors across the residential, commercial (office vacancy rates are currently at the 1% mark) and retail real estate sectors should be looking very closely at what is likely to be almost a guaranteed large scale profit margin.

And current owners should think about holding on to their investments as rental prices surge ahead.

The 25% increase in residential rents over the rest of 2008 is predicted to be followed by a further 15% to 20% increase in 2009.

Supply and demand

Given that rental prices have already gone up by an average of 35% in the first six months of the year, with an Abu Dhabi Department of Planning and Economy (DPE) review finding that 17% of growth was in the first quarter alone, it seems likely that the 2009 figure is at the lowest end of the spectrum.

'A structural shortage of good quality space across the various types of real estate, combined with pent-up demand and strong immigration growth prospects underpin the supply-and-demand dynamics of the emirate's real estate market,' says report author Sana Kapadia.

Interest in Abu Dhabi's real estate sector has been pricked by landmark projects such as the Saadiyat, Yas Island, and Reem Island developments, which have drawn global attention to the emirate.


Deals with global brands including the Louvres and Guggenheim museums and the building of the Formula 1 Grand Prix track have seen international investors, especially from economies not linked to the weak US dollar, taking advantage of the financial climate to pour funds into any available opportunity.

This, in turn, has helped to push up the returns for those speculators looking for guaranteed quick returns.

The recent announcements dismissing rumours of a dollar/dirham revaluation have further served to encourage foreign investment.

Controlled supply

The government's practise of keeping real estate demand high by controlling supply, in line with Plan 2030, has meant that there will always be an exceptionally strong investor demand for any proposed projects.

'[Caps on the amount of real estate that can be built on in a year mean that] given the current supply and demand dynamics, where supply is not expected to catch up with demand over the next 18-24 months at least, prices and rents will continue to rise in all the real estate segments over the short to medium term,' says Kapadia.

The profit margins have also had potential legislative effects. The soaring cost of residential rentals in the emirate, with a DPE poll finding that rents account for close to 50% of residents' expenditure, has meant that changes that affect outside investors may be on the way.

Citing rent as one of the primary drivers of inflation a DPE report released this week has, amongst other measures, recommended that the laws and legislation governing the real estate market and sector investment be reconsidered.

Rather than a complete overhaul, however, this looks likely to encourage a more pronounced focus on developing residential projects that target lower income groups and meet employers' needs.



See also:
Abu Dhabi house prices jump 53% as off-plan booms
Buyers should look beyond $354bn investments