Rents across the freehold areas in Abu Dhabi, UAE, rose by just 2.7 per cent during the first nine months compared to the near nine per cent growth recorded last year, said a report.

Abu Dhabi’s drive for economic diversification continues to directly impact tenant demand, and is helping to deliver long term sustainability to the emirate’s residential property market, according to international real estate consultancy Cluttons.   

The emirate’s strong economy, which is showing significant signs of change with rapid expansion in the education, healthcare and aviation sectors, has been a key driver for residential demand, stated the property expert in its 'Winter 2014 Residential Market Outlook' report for the UAE capital.

The Cleveland Clinic, for example, is set to open in 2015 and has recruited 3,000 healthcare professionals over the course of 2014, the majority of which are new to the capital and have directly contributed to the scarcity of lettings stock across the city.

The hydrocarbon sector continues to contribute to Abu Dhabi’s population growth and has fuelled the creation of additional new jobs.

With the UAE pledging to boost its oil production capacity by approximately 25 per cent to 3.5 million barrels per day by 2017, a significant amount of investment is expected to take place in Abu Dhabi, which will no doubt further bolster the rate of job creation in the capital.  

Steve Morgan, the chief executive of Cluttons Middle East, said: "In addition to the hydrocarbon sector, the education sector continues to expand in order to keep pace with the rising demand for school places."

“A shortage of sites in central Abu Dhabi has meant that new schools have begun to mushroom in more fringe locations on the mainland, which is driving the creation of new residential communities in areas previously considered to be too remote, offering more options in a supply starved market,” he stated.

According to Cluttons, the cost of living is likely to be impacted and is already being factored into rental values as average household incomes fail to keep up with the growth in rents.

“Landlords have been sensitive to the threat of affordability emerging as a core issue for tenants, with many containing rent increases in order to avert an increase in vacancy levels. This behaviour is occurring despite the removal of the government enforced rent cap earlier this year,” stated Morgan.

Cluttons’ international research and business development manager, Faisal Durrani said: “Most mature markets around the world operate freely without government intervention and Abu Dhabi’s rental market is now subject to the usual economic influences, along with the fundamental demand-supply equation."

"That said, the market could benefit from some sort of guidance in the form of a Rent Index barometer; a light touch version of the rental index enforced by Dubai's Real Estate Regulatory Authority (Rera) would probably suit the market best," noted Durrani.

According to Cluttons, the rate of rent increases did recover to an extent during the third quarter (Q3) by one per cent, after rising by a marginal 0.5 per cent in the second quarter.

This is however not reflective of tenant demand, which remains stable but strong. Overall, apartments continued to record a higher rate of rental value growth when compared to villas during the third quarter, it stated.

The demand for new apartment schemes has continued to increase across the capital during Q3. Abu Dhabi’s Aldar properties, recently leased over 200 residential units in the city’s tallest tower - Burj Mohammed Bin Rashid, within a week of its launch.

Mid-range apartments on Al Reem Island were the strongest performing in Q3, with rents rising by almost six per cent. Despite this, rental value growth on Al Reem Island is almost unchanged on this time last year.

With an emerging sense of community living, the desirability of Reem Island is expected to rise, which will in turn help to nudge rents upwards gradually in the coming months, particularly as the overall supply pipeline remains thin.”

The report shows, that in the sales market, like Dubai, the pace of residential value appreciation has slowed in Abu Dhabi, with house prices rising by just 1.6 per cent during the third quarter, taking total growth during the first nine months of 2014 to almost 19 per cent.

The latest rise comes in addition to the 39 per cent rise registered last year, said the report.

Durrani commented: “In a similar pattern to the lettings market, apartment values grew at a faster rate than villas during Q3, rising by just over four per cent, against a marginal drop for villas. Clearly the top end of the villa market, in excess of Dh5 million ($1.36 million), is feeling the strain of the Federal Mortgage Cap.”

Rates for high end villas on Sa’adiyat Island slipped by nearly two per cent between Q2 and Q3.
"Despite the apparent plateauing of villa values in recent months, this segment of the residential market has recorded a 24 per cent rise in prices between January and December, said Durrani.

"In contrast, apartment values on Sa’adiyat Island grew by 2.4 per cent in Q3, as demand for property on the exclusive island continues to gather momentum now that its iconic schemes such as the Louvre and Guggenheim are edging closer to completion," he added.-TradeArabia News Service