Recent regulatory changes are giving an added boost to Abu Dhabi’s real estate market, which appears on track to a recovery.
While there has been some speculation that the new rules could help fuel a property bubble, these concerns are likely unfounded given the recent pickup in the rate of handovers, Global Arab Network reports according to OBG.
Foreign ownership rules change
The January 14 announcement that foreigners will henceforth be permitted to own property in Abu Dhabi on a freehold basis is just the latest interesting regulatory development for the local real estate sector. According to a brief statement by the Abu Dhabi Municipality, non-Emiratis who make purchases in designated investment zones will be able to register their properties under the freehold law and take possession of property ownership deeds in the same manner as nationals.
A number of such investment zones exist in Abu Dhabi, many of which are being developed by state-owned Aldar Properties, and the new ownership regulation that is being applied to them marks a signficant shift from the previous legislation, which generally limited foreigners to leasehold arrangements with 99-year terms. “We believe in Aldar Properties that attracting long-term foreign investors will bring great benefits to Abu Dhabi in particular and to the UAE in general so that we can continue our path of construction and development,” said Abubaker Seddiq Al Khoori, chairman of Aldar, in a statement issued at the time of the announcement.
Recovery underway but concerns remain
While the details of the new regulation have yet to be seen, the announcement has added to a growing interest in Abu Dhabi’s residential property market, following a challenging period.
Between January 2003 and July 2013 the real estate sector attracted more foreign direct investment (FDI) than any other – a total of $5.5bn – according to fDi Intelligence from the Financial Times, but the sector was hit hard during the global economic crisis of 2008-09, and the rate of residential handovers in particular was significantly reduced.
Since then, the authorities have worked to breathe life into the residential property market. Regulatory changes have been its tool of choice, the most significant of which, prior to January’s announcement regarding foreign ownership, was the November 2013 lifting of a 5% cap on annual rental value rises, which had been put in place during the boom years prior to the global downturn.
Taken together with the greater market access given to foreign investors, the removal of the rental cap has fuelled speculation regarding the trajectory of the residential property arena in Abu Dhabi, with some concerned the result will be a market bubble. The scenario looks more heated still when the rapid rent rises in nearby Dubai are taken into account, which has encouraged a section of the market to look at Abu Dhabi as a commuter base. Moreover, a government ruling in September 2013 that requires all public employees to live within the city limits of Abu Dhabi if they wish to remain eligible for housing allowance – which accounts for around a third of their salaries – has led to an influx of renters in recent months.
Fears of a market bubble that have emerged in the local press may be overstated. While local demand is rising, so too is the supply coming onto the market. Aldar, for example, began the phased handover of 3500 units at its Gate Towers development in late 2013 and has a total of 7000 units in the delivery pipeline in Abu Dhabi’s freehold areas. Local press reports suggest that around 43,000 new residential units will be made available to the market by the end of 2015, as construction resumes on halted developments and new schemes seek to take advantage of the nascent recovery in prices.
In this light, the recent regulatory changes might be seen as a sensible response to the increasing rate of unit delivery. “Many new units have come up in Abu Dhabi, reaching the peak of its development cycle. The [rule requiring government employees to live in Abu Dhabi] is to create new demand and make sure the vacancy rates don't reach high levels,” Matthew Green, research head at property consultancy CB Richard Ellis in Dubai, told the local press in late 2013. The government’s actions since then would support this view. Nevertheless, given the real estate sector’s position in the local economy – it was the fourth-largest contributor to GDP in 2012, according to data from Statistics Centre Abu Dhabi – its performance over the next year will continue to be keenly observed as the effects of the new regulations are gradually made evident. (OBG)