Abu Dhabi property prices to increase 'until 2012'

The Morgan Stanley report also finds that rental increases across all sectors are likely to continue for a minimum period of two to three years.

The Abu Dhabi government has already launched intensive investment programmes to boost the supply of property.

The initiatives include recent legislative changes allowing non nationals to own units on 99-year leases, as well as plans to invest $275bn over the next five years on infrastructure developments and real estate projects.

Despite these plans, and the introduction of a 7% rent cap in 2007, which was reduced to 5% in January 2008, findings by HSBC bank put the average rent increases across Abu Dhabi at 22%.

The report notes that this has placed prices as comparable, and in some cases higher, than the historically more expensive Dubai.

Prices reflect double-digit annual increase

According to the annual Kershaw Leonard UAE Cost of Living Report, new 2008 tenancies in Abu Dhabi are reflective of the double-digit percentage increase.

Studios on the Airport Road can fetch up to Dhs50,000, with one bedroom apartments going for Dhs90,000 and two bedroom flats for Dhs140,000. Tenancies for two bedroom apartments on the Corniche and Tourist Club areas now average at Dhs120,000 and Dhs200,000 respectively.

Rental charges at the top end for villas in the emirate now average from Dhs200,000 for two bedroom properties, to Dhs350,000 for four bedroom houses, slightly higher than the average for most Dubai communities. Trends show that the annual increase in rental prices will average out at approximately 30% until supply begins to catch up with demand.

In terms of proprietary property prices the Morgan Stanley report has followed developments in the secondary markets of Al Reem Island, The Gate district and Al Raha Beach. These have already increased by an average of 52% in the year to date, with units on Al Reem showing the highest rise, going up by around 75%.

The Kershaw Leonard report puts the cost of buying property in the emirate again at prices increasingly comparable to neighbouring Dubai. Studios in Al Raha Beach and Hydra Avenue go for Dhs1.2m. One and two bedrooms apartments in the same developments fetch Dhs1.6m and Dhs1.75m, and Dhs3.2m and Dhs2.7m respectively.

Villa purchase prices have risen at a slightly slower rate. Three bedroom houses in the Manazel and Al Reef developments can cost an average of Dhs1.7m and Dhs2.2m respectively. Five bedroom properties in the same areas average Dhs3.15m and Dhs3.1m.

Unit increase to match population growth

Morgan Stanley has based the prediction of a 2012 slowdown in price increases on the amount of units set to hit the market, balanced against the emirate's estimated population growth.

Taking Colliers' assumed figures of 213,000 available units by 2010, the report assumes a total of 278,000 available units by the end of 2012 as major projects begin to come online. This would serve an estimated population of 1.5 million, as compared to 2007 figures of 180,000 units for a population of just under one million.

This is replicated in the commercial sector, where a boost in available retail space is expected to hit the market post-2010, centred predominantly around the Al Raha Beach, Yas Island and Al Reem Island developments.

Similarly, office space, which is currently at 98% occupancy, is predicted to continue to increase in price as companies look to expand or upgrade existing premises, until at least 2010. After this point, if all projects are delivered to schedule prices could stabilise as supply begins to exceed current demand.

See also:
Abu Dhabi property price increases 'certain'
Are construction costs the Achilles heel of the Abu Dhabi boom