How job market weighs on Abu Dhabi housing demand

dubai - Rents and occupancy levels are impacted by housing budget readjustments and job losses in key sectors

The housing demand in Abu Dhabi is a main source of job and population growth, predominantly in the white-collar labour force. The latest data provided by the Statistics Centre Abu Dhabi displays that the emirate's total population has risen by approximately nine per cent since the last residential market peak in 2014.

By 2016, the figure had reached 2.9 million. Over the same time-period, the white-collar population has declined by two per cent, reaching 1.4 million in 2016. Similarly, the white-collar workforce's percentage contribution to the total population has declined by five per cent between 2014 and 2016.

It is important to note that housing demand in Abu Dhabi is closely associated with job creation in the oil and gas sector, as this sector is still a key source of revenue for the economy. Analysis of price performance among key freehold communities within the emirate against oil price movement bears out this correlation.

The rents and occupancy levels across Abu Dhabi are highly impacted by the housing budget readjustments and job losses in key sectors, such as the oil and gas sector, as well as banking and aviation. There is potential to improve housing demand through government infrastructure incentives, such as bond issuance and other measures, which will urge investment into the emirate. However, further consolidation in banking and real estate sectors could result in job losses. This is expected to affect senior executives, and subsequently, it could impact larger units such as villas/townhouses more than smaller units.

Price performance
Marginal price declines have been steady over the last 12 months in Abu Dhabi, with an average of 1.5 per cent for apartments and 1.9 per cent for villas/townhouses. According to the Property Monitor Index, Saadiyat Beach Residences and Villas in Al Raha Garden have seen 12-month declines averaging more than two per cent in Q3 2017.

In the secondary market in freehold locations throughout Abu Dhabi, expatriates bide their time and wait to purchase properties at their lowest prices, thus, there is limited transaction activity. As a result, many are opting for off-plan units because they are more affordable, have higher specifications, although they are smaller in unit size. Meanwhile, deals between UAE nationals continue, mainly for private villas/townhouses throughout Abu Dhabi and buildings on the islands.

It is evident that off-plan sales activity remains high in contrast with the secondary market. This is a result of the attractive payment plans introduced by developers. There has been an increase in activity from end-users, even though GCC and Arabic investors remain the largest segment of buyers in the Abu Dhabi real estate market. The activity from this buyer segment is expected to increase because of attractive payment plans and mortgage options offered by banks, as well as the ticket prices of newly launched projects.

Rent performance
Over the past 12 months, rent averages have declined by 3.1 per cent for apartments and 4.3 per cent for villas/townhouses in Abu Dhabi investment zones. The declines were more notable in Al Raha Gardens and Al Reef villas, where units displayed 12-month declines of over four per cent.

Rental declines have continued as the end of summer approaches and expatriates leave the UAE with fewer arrivals of new families. As a result, landlords in freehold areas such as Reem Island are facing long vacancy periods on their assets. It is evident that there has been a downward trend, which is expected to continue over the next quarter.

Communities with existing social infrastructure, such as schools, are expected to experience relatively stable rents. Within new master developments, getting schools into the mix early on can help to drive end-user/occupier interest as well as interest from sub-developers looking to build within that community.

Residential supply
Across Abu Dhabi investment zones, there are approximately 1,700 residential units that have been handed over this year. Additionally, as of September, approximately 6,274 units are expected for handover for the rest of the year. However, it is important to note that the actual completions may highly vary.

For the upcoming supply, the key locations are Reem Island and Yas Island, which have over 1,500 units each scheduled for completion this year. Aldar's Water's Edge project on Yas Island, one of the new launches this quarter, is expected to have 2,255 residential units, with the majority (42 per cent) being one-bedroom apartments. The new launch is mainly targeting the mid-income buyer, offering a starting price of Dh480,000 for a studio.

Meanwhile, there has been a launch of 44-storey Reem Tower by National Bonds Corporation at the luxury end of the market. This luxury tower is expected to have 335 apartments and will be designed by Nikken Sekkei, a Japanese architectural firm.

The writer is head of Abu Dhabi at Cavendish Maxwell. Views expressed are his own and do not reflect the newspaper's policy.