Abu Dhabi faces a “major shortage” of affordable housing, with most people unable to buy property and annual rents for two-bedroom homes as high as $49,000, the Cityscape exhibition heard on Tuesday.
Experts pointed to a “huge mismatch” between the price of homes in the capital and average UAE salaries, which one consultant estimates at $4,600 a month.
David Dudley, regional director at the consultancy JLL, pointed to the shortfall in cheaper properties in an address on the opening day of Cityscape Abu Dhabi, which runs until Thursday.
“There is a very major shortage of affordable housing,” he said.
But Aldar, the UAE capital’s biggest developer, this week launched its first properties geared towards middle-earners - and some say other property firms will follow.
Property in Abu Dhabi has got a lot more expensive, with sale prices skyrocketing in the recovery after the financial downturn.
The market - like that of neighboring Dubai - was hit hard during the economic crisis. But prices have rallied since, growing by 25 percent in 2013 and 2014 - a rate that is “not sustainable,” according to JLL.
Abu Dhabi rental prices have also been increasing, up by 17 percent in 2013 and 11 percent in 2014, according to JLL. The consultancy forecasts “single-digit growth” in rents this year. A two-bedroom apartment in high-end areas of Al Raha Beach and on Saadiyat Island now cost an average of Dh180,000 ($49,000) per year, according to research by property consultancy Cluttons.
Faisal Durrani, international research and business-development manager at Cluttons, told Al Arabiya News that developers were not currently meeting the need for cheaper housing.
“There is a huge pent-up demand for affordable housing,” he said.
Durrani estimates that the average salary in the UAE is between Dh16,000 and Dh18,000 a month, which works out at around $4,600. That makes it difficult for many residents to buy property given the current prices, he said.
“Most development across the UAE has been skewed towards the luxury end,” said Durrani.
“When you factor in the high cost of living and the fact that average salaries have largely not kept pace with house-price increases and rental growth, you’re creating this vast vacuum in the market where you need to fill it with affordable housing,” he added.
Abu Dhabi’s biggest property developer Aldar is making tentative steps to fill this “vacuum.”
This week it launched its first cluster of apartments geared towards middle-income earners - and says more could be in the pipeline. The Meera cluster, which is part of Shams Abu Dhabi on Al Reem Island, will include around 400 units, with prices starting at Dh899,000 ($244,800) for a one-bedroom apartment.
Aldar says it is targeting middle-earners - those on between Dh20,000 and Dh30,000 ($5,450 to $8,160) a month - with the scheme.
Talal Al Dhiyebi, chief development officer at Aldar Properties, told Al Arabiya News that the “affordable” development could be a prototype for more to come.
“We think there’s a huge demand - it’s an untapped segment,” he said.
“Affordable [housing] is one area that we are just starting, and hopefully it will be a recurring theme within our development pipelines.
“It is something that is relatively new for us, so we are working on it, we are assessing our entire land bank… We definitely see an appetite as we look into the future for those developments to be launched on an annual basis.”
For residents earning between Dh10,000 and Dh15,000 a month, Aldar’s strategy has been to partner with employers to build bespoke housing for staff, Al Dhiyebi said. But that could be a category the developer explores later with direct sales in mind, he added.
Christopher Taylor, chief executive of the UAE mortgage provider Abu Dhabi Finance, told Cityscape delegates that only four percent of the UAE capital’s housing stock was made up of homes worth less than Dh1 million. That makes the majority of homes out of reach for most people to buy, he added.
“There’s a huge mismatch, and clearly that’s the opportunity that Aldar and, I’m sure, other developers are going to get into,” he said.
Under UAE Central Bank guidelines, homebuyers must provide a deposit for at least 25 percent of a property’s value when obtaining a mortgage. Taylor said loosening restrictions imposed on homebuyers could help stimulate the lower end of the market.
But developers wanting to tap the affordable housing market in Abu Dhabi must also ensure that the homes are near schools and amenities such as shops, another panel member told the Cityscape audience.
Fergal G Harris, global head of real estate and family conglomerates at the National Bank of Abu Dhabi, said this was vital for developments targeting middle earners.
“You can’t just have people going round and building residential [units] unconnected, and not provided for from a social-infrastructure point-of-view,” he said.
The Abu Dhabi market is lagging behind Dubai, where developers are already rushing to launch more affordable housing schemes.
The planned Royal Estates development in Dubai Investment Park - which is endorsed by Bollywood superstar Shah Rukh Khan - reportedly includes studio apartments on sale for as little as Dh284,888 ($77,500), for example. And the developer Nshama is selling apartments for Dh349,988 ($95,300) in its Town Square project near Al Barsha.
Durrani said such developers were making “a small step in addressing that massive gap” in affordable housing in the UAE.
But more affordable housing could be on its way, following a proposal by Dubai Municipality to introduce mandatory quotas that would oblige developers to include cheaper units in new residential developments.