Abu Dhabi's real estate sector focusing on mid-market demand

Renewed demand for more affordable housing in Abu Dhabi has come about as a downward readjustment of housing allowances has strained rents in the high-end residential sector. Developers are now shifting their strategies to include new mid-market developments. This has enabled double-digit returns on rental yields for some, making the mid-market segment a bright spot in an otherwise subdued residential market.

Incentives

Stakeholders report that landlords are increasingly aware of the challenges, and have begun offering incentives to attract and retain tenants. “Institutional landlords are being more proactive than at any other time during the past six years, offering incentives that include rent-free periods or eliminating service charges to be competitive as an all-inclusive package,” Matthew Dadd, partner at Knight Frank Abu Dhabi, told OBG. According to a report published in April 2016 by real estate consultancy Cluttons, rents in more affordable areas such as Hydra Village were the most resilient in the market during the first quarter of 2016, recording a total of 25.9% rental growth in the 12 months to April 2016, and forecast to increase by 2-3% over the full year.

Affordable Development

Private developers have recognised the opportunity in mid-tier residential projects, with the supply pipeline for such developments expanding. In September 2016, for example, Abu Dhabi-based Bloom Properties, a subsidiary of Bloom Holding, announced that it is planning to build 3000 new apartment units in the emirate, with rental rates starting at Dh45,000 ($12,300) annually.

The developer plans to build five blocks of mid-range housing, following strong sales success at a similar project in Bloom Heights in Dubai’s Jumeirah Village in September 2016, where buyers purchased 80% of available apartments, with prices starting at Dh360,000 ($98,000) for a 40-sq-metre studio and Dh620,000 ($169,000) for a 74-sq-metre one-bedroom apartment. The remaining units will be available for rent on completion in 2019. “Many developers, ourselves included, are taking increasing interest in the mid-market segment,” Sameh Muhtadi, CEO of Bloom Holding, told OBG. “However, the challenge is more significant for affordable housing, which need to sell at prices 25% lower than mid-market units. The high cost of land presents a challenge in this space, so the future here will likely involve some collaboration between developers and government.”

Three similar projects are in the works in Abu Dhabi: one on a 2m-sq-metre plot of land in Mohammed bin Zayed City, near Abu Dhabi International Airport, and two additional projects at Al Raha Beach and in Baniyas, to be developed if the first is successful.

Profit Motive

Several UAE-based developers have announced similar projects recently. Abu Dhabi’s Aldar Properties, for example, began the construction of its first mid-market project, Shams Meera on Reem Island, in September 2016, announcing in the same month that 90% of its 408 planned units had sold in less than six months (the development launched in June 2015), with prices starting at Dh915,000 ($249,000).

In February 2017 Aldar announced plans to focus on building mid-market homes, which saw further movement at Cityscape Abu Dhabi in April, when the company launched its 1272-unit Bridges development on Reem Island. The project represents an investment of Dh1.3bn ($353.9m) and will be handed over in 2020. Prices will start at Dh450,000 ($122,517) for a studio and rise to Dh1.5m ($408,390) for a three bedroom.

The company said that it expects to launch around 1500 units a year into the market to capitalise on pent-up demand for affordable housing. “We do not compromise on quality, meaning that for us, mid-market housing must still have the requisite amenities which residents have come to expect such as gyms and swimming pools, and the apartments need to perform on both style and substance,” Mohamed Khalifa Al Mubarak, CEO of Aldar, told OBG.