By Gavin Davids
Costs in the capital to be hit by fresh supply and rival, lower rents in Dubai’s commuter belt
Rent costs in the capital are set to tumble in the new year,
pulled down by fresh supply and the impact of falling rents in Dubai, a real
estate analyst has said.
Rental costs in the emirate will continue to slide over the
next three years, as supply catches up with demand, said Craig Plumb, head of
research at Jones Lang LaSalle MENA office.
“The reason prices are falling are not because there isn’t
demand, there’s already more demand than there is supply. Prices are falling
because they were at a level that couldn’t be sustained,” he told Arabian
“There are more properties coming onto the market, but
despite that, there is still a shortage in terms of there being more households
than there are properties in the Abu Dhabi market. It’s a question of how far
the rents have to fall before people can afford the stock that’s coming into
The capital must also compete with the lower rents seen in
Dubai. An estimated 15,000 employees commute from Dubai to Abu Dhabi each day,
drawn by rents that have fallen some 60 percent from their 2008 peak.
“While the new supply will come on in Abu Dhabi, there are
still various other types of infrastructure, particularly things like schools,
which are required to attract people to move,” Plumb said, “In order for Abu
Dhabi to attract residents, that infrastructure has to happen.
“I think that it’s
just that Dubai and Abu Dhabi are at slightly different points of the cycle,”
he continued. “Abu Dhabi’s supply has
been less than Dubai, but that’s about to change in the next couple of years,
and as more space comes on in Abu Dhabi, the dynamics of the city will vary.”
Abu Dhabi is poised to absorb 20,000 housing units annually
until 2012, JLL data shows.
The market is oversupplied with large four or five-bedroom
villas, and it is these properties that will see the largest fall in price,
Smaller properties such as one and two-bedroom apartments are
largely expected to hold their value, if their rental prices remain realistic.
“There is a demand at the right price. That’s the issue,
there’s going to have to be an adjustment in price before the demand can be
triggered. There’s definitely going to be a need for owners to adjust to the
changing market circumstances,” he said.
Villas in the capital have dropped in price by AED150,000
during the year, according to JLL data, while two-bedroom apartments have seen
a drop of AED50,000.