Residential rebound: Rental prices are on the rise

Demand for prime residential properties rose in the first half of 2013, as government employees prepared to comply with a new rule requiring that they live within the emirate to qualify for the government housing allowance. Announced in 2012 and effective as of September 2013, the rule applies to Abu Dhabi’s 23,000 government employees, of which an estimated 10,000 were previously commuting from Dubai. Jones Lang LaSalle (JLL) attributed the rebound of prime rental prices, at least in part, to the new residency rule. Average two-bedroom rents rose from Dh120,000 ($32,664) per year to Dh130,000 ($35,386) per year in the first half of 2013, according to JLL data, with demand focused on master-planned developments such as Al Raha Beach, Reem Island and Saadiyat Island.

Price Hikes

 For prime real estate at Saadiyat Beach, rents increased an average of 10% between the second quarter of 2012 and the second quarter of 2013, with three-bedroom flats leasing for Dh190, 000-285,000 ($51,718-77,577) annually, according to Asteco. Average rents for high-end flats at Al Raha Beach and the two Reem Island developments, Shams Abu Dhabi and Marina Square, rose 20%, 10% and 17%, respectively, over the same period. Rents for villas at Al Raha Beach and Al Reef were up 14% and 8%. Historically, Dubai has been as an attractive destination for families because of local amenities and more affordable properties. However, “The gap between rents in Dubai and Abu Dhabi is closing,” Christopher Taylor, CEO of local mortgage lender Abu Dhabi Finance, told OBG. Indeed, rents in Abu Dhabi are just turning, while Dubai saw prices rise an average of 15% for flats and 14% for single-family homes over the past year.

The implementation of the new residency rule also coincides with growth in Abu Dhabi’s high-quality residential stock. Where the emirate previously had a limited supply of high-end facilities, recent additions and projects in the pipeline are augmenting the availability and affordability of luxury facilities with amenities. “The quality of residential units in Abu Dhabi is generally improving, with newer product being better aligned to end-user requirements in terms of design, management and the provision of amenities. Rental prices have historically been somewhat higher in Abu Dhabi than Dubai, but with prices in Dubai increasing more quickly than in the capital, this differential is narrowing”

David Dudley, regional director and head of the Abu Dhabi office at JLL, told OBG.

Challenges

Still, not all government employees are relocating to emirate. Amid protests from families loath to break ties to their communities, the Abu Dhabi government said in August 2013 that exemptions would be considered. A month before the law took effect, authorities announced “special cases that require exception will be considered and assessed, and appropriate decisions will be made to each case”. Employees reluctant to make the move cite education as a key reason.

Not only are Dubai-based families hesitant to pull children out of their schools, but more generally Abu Dhabi’s school capacity remains underdeveloped in some areas.

The units on Saadiyat Island, for example, offer top-quality facilities but no local schooling options.

The Abu Dhabi government is making significant investments in education to catch up with demand, and the Abu Dhabi Education Council estimates that 100 new schools will be needed in the next seven years to serve an additional 146,000 students.

Top-end private schools are opening across the emirate to meet this growing demand. Large private operators, including Aldar Academies, a subsidiary of the local developer Aldar Properties, and GEMS, the largest private school operator in the world, are expanding capacity. Aldar Academies now operates a total of six primary and secondary schools in Abu Dhabi and Al Ain, and its parent company recently inaugurated the capital’s first Repton School, which it developed on Shams Abu Dhabi.

In 2014 Cranleigh School will open a campus on Saadiyat Island with the capacity to serve around 1600 students. “When Cranleigh School comes, you will have everything you need at Saadiyat Island,” Taylor said.