UAE capital up to 20,000 units short, approving developments in 'measured way' - Aldar.
Abu Dhabi is limiting construction to avoid the housing glut and price declines that battered the real estate market in neighboring Dubai,
PJSC CEO John Bullough said.
The Emirate has a shortage of 15,000 to 20,000 units and the government will let the “rope out on development in a measured way,” Bullough, whose company is the UAE’s second-biggest developer, said in an interview. “There will be, in our view, a lag between supply and demand.”
Abu Dhabi, the UAE’s capital and holder of 8 percent of the world’s oil reserves, controls development from homes to offices and transportation links under ‘Plan 2030,’ devised in 2007. The plan foresees the population growing to as much as 5 million by 2030 from an estimated 1.6 million in 2008.
“There is a short-term question mark, but then there is a medium- to long-term suitability,”
Chief Financial Officer Shafqat Malik said in an interview last week at the company’s Abu Dhabi headquarters. “What we saw over here is the doubling of rents and prices. Is this a sustainable way for any economy to grow? The answer is probably no.”
said it plans to deliver 3,500 homes and 140,000 square meters (1.5 million square feet) of commercial space over the next 18 to 24 months. Abu Dhabi’s government owns 18.9 percent of
through Mubadala Development Co and 7.2 percent through state fund manager Abu Dhabi Investment Co, according to the emirate’s exchange.
Limiting supply “brings up the cost of housing and can be seen as an additional tax on companies,” Jesse Downs, director of research and advisory services at Dubai-based Landmark Advisory, said in a phone interview. “So it could potentially curb job growth, which has a residual effect on the real estate market.”
Abu Dhabi home prices have dropped by an average of 33 percent from their peak in the third quarter of 2008, according to Matthew Green, head of UAE research at CB Richard Ellis Group Inc. Dubai’s residential property values have fallen by more than 50 percent and UBS AG said last week that they may decline by as much as 30 percent more.
“We are not in the business of releasing and withholding units or regulating prices,” Fouad Kassem, public affairs officer for Abu Dhabi’s Urban planning council said in a phone interview. “Our role is focused on planning and proposed projects that don’t fit with the master plan are not allowed.”
Slowing down construction was easier in Abu Dhabi than Dubai because more projects were at the planning stage when the financial crisis hit and therefore easier to postpone, Downs said. Dubai is moving to tighten control of its own property supply through a planned combination of
PJSC, the country’s biggest developer, with state-controlled Dubai Properties LLC, Sama Dubai LLC and Tatweer LLC.
A housing shortage in Abu Dhabi won’t help lift prices because residents can commute from Dubai, which has an oversupply, Deutsche Bank AG said in note in June. The highway linking the two cities makes “both markets highly interconnected,” it said.
Dubai opened its property market to foreign investors in 2002, followed by Abu Dhabi three years later, fueling a boom bolstered by low interest rates. Prices slumped at the onset of the global financial crisis as banks clamped down on mortgages and speculators left the market.
“We suffered from the same thing here as the rest of the world in terms of speculation and flipping,” Bullough said. “Those days are gone and there is a much more pragmatic focus to purchases. The dealers, it’s fair to say, have left the market.”
Property speculation in Abu Dhabi and Dubai caused institutional investors such as ING Groep NV’s $150bn real estate fund to shun the markets and prompted governments in both emirates to cap annual rent increases.
“There has been a significant reprioritisation across the whole of the development community,” Bullough said. It “delayed delivery of a lot of what was in the pipeline, and that bodes well for the future because it means we will be able to maintain a more effective balance between supply and demand.”
Aldar postponed its Al Dana development, originally designed as a luxury project, and asked for a redesign to suit the needs of low-income buyers, Aldar’s COO Sami Asad said in February.
“We see greater demand at the smaller scale, more affordable end of the market,” Bullough said. “That’s perfectly normal for any market. You have a much higher proportion of people who can afford a medium-sized place.”
Thanks to Dubai for building communities together so that now we can live in cheap rent with over supply. With Abu Dhabi's plan on limiting, it looks like the rents are gonna stay high for another decade. I thought we were suppose to make this place livable. Am sorry, this is a bad decision. I though Abu Dhabi was heading to some straight path.
Hey MM, this is not a bad decision after all. Oversupply can kill the economy. Do you want to live in a Ghost community - all by yourself - in a community with no occupants. I wish Dubai follows the good example of its elder brother and cuts down the oversupply. Funds saved can be utilized for better purposes.