Lack of affordable housing in Abu Dhabi remains an issue despite cooling market

Published December 9th, 2015 - 08:40 GMT
Unlike Dubai, Abu Dhabi does not have locations where affordable housing can easily be developed. (File photo)
Unlike Dubai, Abu Dhabi does not have locations where affordable housing can easily be developed. (File photo)

Only full-scale legislation creating affordable housing quotas can help ease the pressure on tenants in Abu Dhabi’s housing market. The best part from a tenant’s perspective is that such a plan is in the works.

The legislation would make it mandatory for developers to create a set number of homes that are deemed as ‘affordable’ within their projects. But when the requirement is to become legally binding is as yet unclear.

“The problem of the lack of affordable housing in the Abu Dhabi is incredibly clear, especially when factoring in the 34 per cent increase in average house prices since 2010,” says a Cluttons market update. The consultancy adds that the “idea of affordable housing” has worked in high-priced property markets such as London, “where developers are liable to provide affordable housing for developments starting with as little as 10 units”.

Why Abu Dhabi needs its share of lower priced housing options are clear enough. “An average expat household aspiring to purchase a home in Abu Dhabi has to contend with an average annual rent of Dh204,000 against an average household income of Dh199,000,” said Faisal Durrani, Head of Research at Cluttons.

Even though gains on both capital values and rentals on homes in Abu Dhabi have dropped appreciably, they still remain on the high side. For instance, the average residential capital value is pegged at Dh1,336 a square foot. (Capital value is a property’s likely selling price at the date of valuation.)

“The strength of capital value growth in recent years, coupled with the severity of shortage of stock in the rental market has driven households out to peripheral locations in search of what they perceive to be better value for money,” said Durrani. “The sheer strain on budgets and the depth of demand for something ‘affordable’ is reflected in the fact that three-bedroom villas in Hydra Village, for instance, recorded an extraordinary 32 per cent uplift in rents between January and September, compared to just 2.5 per cent for the emirate as a whole.”

Recently, developers have responded by launching a limited number of projects at newer locations and with prices that do not carry a super-premium. But these have more often than not been open only to UAE nationals. What the market needs urgently is for developers who can guarantee a sizeable number of new builds with an affordable price tag that can stick.

But what makes it difficult is that Abu Dhabi doesn’t have locations where affordable housing can take root with a fair degree of ease. This is unlike the situation in Dubai, which is pushing development activity to its southern corridor and where land prices are still on the lower side.

“This issue of affordability (in Abu Dhabi) has been building for some time, initially following the introduction of the Federal Mortgage cap and doubling of property registration fees,” said Edward Carnegy, Head of Cluttons Abu Dhabi.

“These had the desired effect of cooling the market, but now many people are forced to pay premium rents, limiting their ability to become owner-occupiers in the long term.

“This presents a major opportunity for developers to deliver housing that is ‘genuinely affordable’, while still of a high quality, with the potential to offer flexible access to home ownership through models such as ‘rent-to-own’.”

The question is whether developers will take the plunge on their own or wait for legislation to make it happen.

By Manoj Nair

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