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Mon 18 Jan 2010 10:40 AM

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Abu Dhabi developer facing profits squeeze - study

Report says house prices need to rise by 29% to give Aldar more incentive to build.

Abu Dhabi developer facing profits squeeze - study
PRICE REPORT: Abu Dhabi house prices need to rise by 30 percent to give developers more incentive to build, according to a new report. (Getty Images)

Real estate sales prices in Abu Dhabi need to rise by nearly 30 percent to justify the price developers are currently paying for land in the capital, according to a research report released on Monday.

The research, by HC Securities, looked specifically at Aldar Properties, the Abu Dhabi master developer behind the Yas Marina Circuit, Al Raha Gardens and the Ferrari World theme park.

The report found that average property prices were currently around AED14,000 per sq m. Average plot selling prices in the UAE capital for developers were currently at AED4,000 per sq m, which, the report said, gave Aldar a margin of just four percent after adding other building costs.

For margins to rise to at least 20 percent, the average property price needed to rise 29 percent to AED18,000 per sq m in order to “justify” the current land prices, the report said.

“Accordingly, we feel demand/land sales are likely to remain weak going into this year,” the report added.

HC Securities also found that the UAE real estate market began to lose momentum from its initial recovery in the fourth quarter of last year, with transaction prices down five percent in October and November.

Tightening liquidity also saw mortgage values drop to 21 percent of total transactions, compared to 32 percent in September.

The analysts estimated Aldar’s revenue will be AED4.88bn this year, total costs will be AED3.17bn and net profit for 2010 will be AED2.916bn.

While Landmark Advisory’s latest price guide showed that property sales in Abu Dhabi in October and November were among the highest in 2009, prices remained stable as buyers continued to look for distressed sales.

Landmark Advisory released its December sales guide for the UAE capital which showed little change in real estate prices.

Jesse Downs, director of research and advisory services at Landmark Advisory, said: “Prices are only likely to increase for developments that are close to completion during 2010. As these developments get closer to completion, transaction volumes are expected to increase, which could gradually lead to marginal price increases.”

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Anonymous 10 years ago

If there is a slowdown in developments in Abu Dhabi then rents will remain high. Supply and demand will remain out of balance for years to come. Aldar, being a government entity, should continue building because anything they start today will probably not be ready for another 24+ months. By then hopefully the government will have pumped money into the Tamweel/Amlak company and it as well as other banks/mortgage companies will be lending at a brisk pace. There will be an increase in prices in Abu Dhabi once more lending is available.

MH 10 years ago

"property prices are currently AED14,000 per sqm". This is build-up area I'm sure. Plot selling price is referring to the area of land bought. For a villa this is a whole different situation than for an apartment building for example, so I wonder how they get to their 'analysis'. Also, making 4% margin with a price of 14,000 and a cost of 4,000 on the land means that building cost would be over AED 9,000 per sqm? I really don't think so. AED2,000-3,000 per sqm is more reasonable, maybe 4,000 for those exceptional cased where they use high quality materials.

RAV 10 years ago

I am really surprised over this findings of this report.Already rents in the AUH is exceptionally high and beyound the limit for the good middle income i.e 20,000 to 30,000 AED monthly .Because still one bed room is around AED 120,000 which means AED 10,000 will go for rent then only 10,000 AED left.The if some one has kids then remaining will go to the school fees and other .Also there will be more supplt of flats /villa so there will be reduction in rent rather than hike .So better HC revised itss reports?