Emerges as the stronger performer while low demand assails office space
Dubai: The real estate markets in Abu Dhabi and Dubai seem to be moving in completely opposite directions, with the divergence widening with each quarter.
In Abu Dhabi, sentiments swirling around the office market remain downbeat while the residential market continues to show some upward mobility.
So much so, residential rents last year were up 4 per cent in the emirate on a year-on-year basis, and led by increases for more affordable homes, according to CBRE estimates.
But average prime office rentals remained flat, which “depicts the limited availability of Grade-A offices”, the report adds.
This is in contrast to what is happening down the road into Dubai, where property values and rentals in residential remain in soft mode, while demand for offices is steadfastly bullish.
“Despite the emergence of more moderate economic conditions, the residential sector [in Abu Dhabi] has continued to depict stability, with only a 1 per cent marginal decline in overall rental levels recorded during the (fourth) quarter of 2015,” said Matt Green, Head of Research & Consultancy UAE, CBRE M.E. This was largely brought about by some downside in the rental performance of some larger and high-end apartment types.
“Inversely, slight rental increases have been apparent for smaller, more affordable housing units.”
In fact, the affordable category could see heightened action, with expectations rife that the ‘Abu Dhabi Urban Planning Council (UPC) will soon publish a new policy relating to affordable housing requirements for future developments,’ CBRE reports. ‘It is believed that 20 per cent of the total units will be required to be allocated for affordable housing units. ‘However, it still remains unclear exactly how the policy will be structured or enforced.’
Even further up the residential value chain, demand is at its peak. Aldar Properties had a 99 per cent occupancy during Q4-15 with the 4,732 units in its leasing portfolio. The developer’s occupancy was also ‘bolstered by a strong book of corporate tenants leasing within their properties’, CBRE records, citing Cleveland Clinic Abu Dhabi’s lease of 607 apartments at the Gate Towers on Al Reem Island and the Al Rayyana development in Khalifa City.
Outside of the city limits, Khalifa City, Mussafah and MBZ are consolidating their status as alternative residential destinations, though ‘limited public transportation infrastructure remains a key downside, making these locations less accessible for many in the low income population groups’.
Rentals for studio and one-bedroom units in Khalifa City are Dh30,000 — Dh45,000 and Dh40,000-Dh55,000 respectively. This, according to CBRE, translates to a minimum 35 per cent rental gap when compared to average rentals for low to mid-end properties within Abu Dhabi’s city centre, which are from Dh40,000-Dh70,000 for studios and Dh60,000-Dh110,000 for one-beds.
‘We expect the residential market to outperform other commercial uses, with rentals remaining more resilient due to the more constrained development pipeline, particularly in the low to middle market segments,’ CBRE reports.
• All eyes will be on the imminent Abu Dhabi real estate law (Law No. 3 of 2015), which will have Department of Municipal Affairs regulating the realty sector and overseeing the law’s implementation.
• The law has far-reaching provisions relating to the protection of rights of buyers and sellers within the investment zones. ‘This includes regulation of off-plan sales, with the marketing and sale of units only possible where developers can provide proof of ownership, whilst escrow accounts are now also mandatory,’ CBRE reports. All properties are required to be registered with the Department of Municipal Affairs. The law also regulates the collection of registration fees from investors, meaning the existing 2 per cent registration fees on property resales would no longer be applicable.
• Law No. 3 of 2015 also features compensation provisions for delayed projects, through penalties on developers to compensate purchasers for delays which extend over six months past the agreed completion date. In cases where delays are significant, the law highlights the possibility of cancellation or appointment of a new developer.
• The law also imposes a 10-year building liability for developers, with legal responsibilities relating to structural defects in the building and a one-year defect liability period after handover.
SOURCE: Gulf News