Abu Dhabi builds property stock, but will cheaper rents follow?

Sixty-five storeys above the sandy ground in Reem Island workers are putting the finishing touches to what is soon to become the world's highest sky bridge.
Workmen have tidied up the final cables hanging down from the 245 metre structure containing 16 penthouse apartments and are now hard at work inside fitting electric cables and plumbing.
Developer Aldar says it has now completed more than 98 per cent of the entire 3,533-flat The Gate project next to Sun & Sky Towers and will finally complete the long-awaited project by the end of next month.
The distinctive grey towers, which look something like a sleek and super-sized Stone Henge, have long been a feature of the Abu Dhabi skyline, visible to anyone entering the city along the main thoroughfare Salam Street.
But when construction work finally ends it will mean another 2,133 unsold luxury apartments hitting the over-supplied Abu Dhabi rental market as well as what is likely to be the vast majority of the 1,400 flats already sold.
And it's not just The Gate that is bringing new flats to Abu Dhabi. In total 5,000 new homes are scheduled to come on stream in the Shams area of Reem Island alone by the end of the year as sub developers complete flats in Reem Diamond, Mangrove Place, Beach Terrace, Al Rifaq Tower and Oceanscape Tower. Elsewhere in Abu Dhabi, Hydra is finally completing the first phase of its Hydra Village scheme comprising 448 townhouses on the Abu Dhabi mainland.
The new luxury flats join an already burgeoning inventory in the city centre and in new masterplanned areas such as Al Raha Beach and Capital Gate.
The rapid increase in supply of luxury apartments is fuelling debate among property experts over whether this is the trigger that will signal a fall in prime rents in the capital or whether landlords will continue to ride it out without bringing prices down. For its part Aldar, the developer of the The Gate, the largest of the new projects to complete, predicts the increase in the number of new properties will push rents on Reem down.
"Our rentals may have to come down a bit so we are able to compete in the market and so we have a first-mover advantage in trying to get the tenants into our developments," Gurjit Singh, Aldar's chief development officer says.
"I would think with perhaps 5,000 more units coming on to the market, we have to be quite realistic."
But local property brokers point out that despite high levels of new supply and a relatively constant demand, housing rents in Abu Dhabi in general have remained far higher than market dynamics would suggest and generally higher than those in Dubai.
Agents report average rents for a prime two bedroom apartment in the capital stands at about Dh130,000 a year - a fall of between 40 and 50 per cent since the market peak.
In the lacklustre Abu Dhabi market, that is still higher than the asking prices of between Dh100,000 and Dh125,000 for similar flats in the booming Dubai Marina and Downtown Dubai where rents are rising rapidly from lows of significantly less.
In a typical market, housing costs are around 25 to 30 per cent of wages but in Abu Dhabi agents report that they tend to be about 40 per cent plus. And for the new masterplanned areas of the city rents seem to have increased over the first part of the year. According to Asteco, prime rents in Abu Dhabi rose 10 per cent between June last year and June this year with areas such as Al Raha Beach and Al Reem Island reporting occupancy levels of 65 per cent or more.
So why is it that Abu Dhabi rents seem to be defying the market and remaining so high? It's a question often mooted in the cafes and restaurants of the capital by frustrated residents.
"We've been saying rents in Abu Dhabi should fall for a while now and after an initial drop they have remained fairly static for the last 18 months," says Craig Plumb, the head of research in Jones Lang LaSalle's Dubai office.
"New supply is definitely coming on stream but the issue is why isn't it pushing down rents in Abu Dhabi? Our feeling is that rents are stable and not falling."
Market experts point to an increase in the population due to the recent government edict requiring all government workers to live in the emirate rather than to commute in from Dubai. It is estimated 20,000 people commute between Dubai and Abu Dhabi a day. As most jobs in Abu Dhabi are public sector it's likely the lion's share of these commuters are government workers of some kind or other.
Others point to the fact that tenants who previously lived in sub-standard accommodation in more established areas such as the Corniche or Khalidiya are moving into the new masterplanned areas and pushing up rents.
"The apartment market, in particular, has undergone considerable change since 2012, as large amounts of better-quality supply were delivered," says John Stevens, the managing director of Asteco Property Management.
"This has meant that projects previously considered high-end are becoming obsolete, and their position in the market reduced to mid- or even low-end status."
Mr Plumb goes further. "The Abu Dhabi market is not driven by economic fundamentals. Some landlords just don't mind keeping their apartments vacant if they cannot secure the desired price," he says.
"It's very difficult in that sort of market to predict what will happen with rents.
"However, my view is that it is only a matter of time and logic alone would suggest that they will fall at some point."


lbarnard@thenational.ae