Will Abu Dhabi Rents go Up or Down in 2016
The Abu Dhabi real estate sector had a confusing year in 2015. Sales prices were flat and had been since the last quarter of 2014 (when Dubai began its sharp fall), but leasing has failed to read the script and was up by as much as 7% in some areas in 2015 according to JLL (still much reduced from the pace that we saw in 2013 and 2014 however). What will rents do next year?
In terms of the supply of new units coming onto the Abu Dhabi market, the property pipe-line is looking bare indeed. A lot of new projects are planned, such as Mamsha on Saadiyat Island (TDIC), Ansam, Mayan and West Yas on Yas Island (Aldar) and Al Hadeel on Raha Beach (Aldar) to give just a few examples, but these projects will not come online until at least 2017. Abu Dhabi’s large developers were badly stung by the 2008 crash and have lain dormant almost ever since with only the serious rental spikes in 2014 prodding them out of their slumber and back to the construction site. High-rise buildings have a lead time of up to four years so the delay in restarting stalled projects or launching new ones has long-term effects. Most Q3 2015 reports are saying that over the next two to three years we’ll be adding only 2-3% to the total housing stock per year.
Demand for units in Abu Dhabi on the leasing side has continued to remain strong as according to most reports rents went up by around 5-7% in 2015. This rise was mostly due to the low supply coupled with an increasing population. Population predictions in such a fluid, immigrant based economy are hard to come by but according to SCAD Average Annual Population Growth Rate between 2005 and 2014 was 7.6%. It this holds then population will continue to outstrip housing supply and rents will continue to rise, as simply put demand is greater than supply.
But what of the oil price slump, will this affect population statistics? According to Monster.com and Hayes it seems it hasn’t yet, companies are still hiring (but less than half expect to hire more in 2016) even in the midst of what would seem like reduced sentiment in the region. Abu Dhabi population is closely linked to government spending and jobs so people will be looking closely at the emirate’s budget for 2016 (yet to be announced). The Federal budget was cut by a modest 1.1% for the coming year and Dubai’s budget was increased by a whopping 12%. The IMF has stated that is expects the UAE economy to grow by 2.6% in 2016 so outlook is reasonably positive. We expect rents to increase at an inflation level 4-5% in 2016. Oil and construction jobs have taken a hammering recently so it will be interesting to see how other areas hold up.
In summary we think the property market will generally hinge on population statistics. If people keep arriving as they have been then rents will go up and returns will start looking just too good for buyers to bear, they’ll come back to the market in droves to take advantage of yields and cost savings. However, if Abu Dhabi Government spending falls off a cliff, they start laying people off outside the oil and construction sectors which have already taken the brunt of the reductions, then we might see a population stagnation. If that happens then we’ll see bloated housing inventories and sale prices and rents will start to fall.
It is also worth mentioning that according to SCAD, even between 2008-2013, the Abu Dhabi population continued to grow at above 5% per annum. Contrary to popular belief the last Abu Dhabi property slump in 2008 was caused not by population decrease but by oversupply, as Reem Island and Raha Beach units were released onto the market.
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