With the Dubai property market heating up fast, it would seem natural for Abu Dhabi to follow a similar path. While prices are indeed up, all is not as it seems.
Read local media reports and house prices in Abu Dhabi are on the rise. But look a little closer and the market is not quite as rosy as it first appears.
According to real-estate consultancy, Jones Lang LaSalle, prime asking prices in Abu Dhabi rose to AED12,100 per square metre from AED10,200 at the end of last year. And in Q3 of this year alone, prices in prime areas rose by an average 5%.
One element that contributed to the rise was Abu Dhabi’s ruling that all public sector employees reside in the emirate they work in. The ruling, enforced in September this year, proved a windfall for the emirate’s property market as landlords and sellers took advantage of the increased demand.
However, look a little closer and Abu Dhabi’s property rebound is not a done deal. Yes, prime developments (the most sought-after neighbourhoods) have experienced a rise but according to Jones Lang LaSalle, this rise is limited to those developments alone.
The rise does not reflect an emirate-wide rebound from the dark days of the global financial crisis and subsequent property market crash in the UAE. This shows that positive growth is limited to factors such as the quality of a location and its design and management, allowing higher-tier properties to jump in value over lower quality builds.
In fact, the price increase is still below the market’s peak at the end of 2009. Back then the average prime house price (per square metre) was more than 20% what it is today so the market has some way to go before it hits that target.
However, with Dubai’s property sector booming and Abu Dhabi traditionally following a similar path to its neighbour, albeit a little further down the line, industry experts fear another property bubble.
The governor of the Central Bank recently dismissed such worries. Reflecting on mistakes made during the financial crisis of 2008-2009, Sultan Al Suwaidi stated that he did not believe a bubble would happen again.
Al Suwaidi cited two factors that will prevent a rerun of the past: Firstly the new mortgage cap that sees expats and Emiratis limited on the loan to value ratio of new mortgages. Secondly, the governor believes banks have learned their lesson and this time will not over extend themselves in the property sector as they did before.
The only way to know for sure is to wait and see. Abu Dhabi – already world-famous thanks to its Formula One partnership and Yas Waterworld, the most expensive water park ever built – has several big developments set for completion in the coming years. These include the Etihad Rail project, the Saadiyat museums and several major new malls.
As the past has proven, most UAE property buyers pay in cash. If the market is beginning to heat up and continues this trend, the cash buyers can afford to keep up. With the prime residential sales market showing signs of positive growth, it will be interesting to see if the rest of the capital follows suit. Watch this space.