Abu Dhabi apartment rents soar despite numerous new buildings

Apartment rents in Abu Dhabi surged by more than 15 per cent last year after an increase of nearly 20 per cent the previous year due to strong demand triggered by the rapid population growth and the booming economy.

Although they are expected to stabilise in the next few years, rents will likely remain high in the short and medium term despite new buildings.

The sharp rise over the past few years followed a surge in business due to high oil prices and a seven per cent annual growth in the population. Another reason was a decision by the Abu Dhabi Department for Commercial Buildings and Services (ADCBS) to hike rents at the request of owners.

"Many people think rents are too high and will come down eventually, but I tell them they are wrong," a real estate agent said. "I believe the current rent levels are reasonable considering the fact that Abu Dhabi is the capital of the UAE and is growing steadily in population and economy. "

Abu Dhabi has recorded one of the fastest population growth rates, standing at nearly seven per cent over the past two decades.

It now has more than 600,000 people compared with only 140,000 in 1980 and, according to the Planning Department, the population is projected to surge to 1.35 million in 2020, a staggering increase of nearly 230 per cent.

In economy, Abu Dhabi is recording a steady and rapid growth due to higher oil production and the emirate's drive to expand the non-oil economy and encourage private investment, mainly foreign capital.

The UAE Central Bank figures also showed the real estate sector in the UAE is recording one of the highest inflation rates because of the sharp increases in apartment rents.

The Bank's 1995 price index for UAE rents surged from 96 in 1998 to 98.1 in 2001 and to 110.4 last year. The sector's contribution to the GDP also peaked at about Dh21.3 billion ($5.8 billion) last year to become the third largest GDP component after the oil and manufacturing sectors.

"I believe rents could have shot up further without downward pressure by the Abu Dhabi Department of Commercial Buildings and Commercial Services, which controls more than two-thirds of the residential buildings. But I still believe it could play a more effective role by putting pressure on the landlords," another real estate agent said.

Soaring rents in Abu Dhabi, which are much higher than in other key UAE cities, are seen as a bane for both the public and private sectors while they are a boon for investors and owners because they allow them to make quick profits.

"Investment return from real estate projects in the UAE is among the highest in the region.

This is because the rents are high and building costs have gone lower recently," said Mohammad Yassin, general manager of Emirates Commercial Centre, a stockbrokerage and investment house.

"Rents are expected to remain high because there are no laws that set a ceiling for apartment rents and some owners are simply raising their prices to make more money, although they cannot make large increases because this will hurt their interests.

"Another factor is that some key oil companies and other national firms are renting entire buildings just to ensure a fixed income to national owners in line with the government policy. This keeps demand high."

According to real estate agents, a tiny, centrally air-conditioned studio flat on the luxurious seaside Corniche could cost more than Dh30,000 a year while a super deluxe apartment in a brand new building in that area could fetch Dh200,000. Rents have also gone up in the outskirts of the city, mainly in Mussafah.

"There has been a strong demand for offices and residential apartments in Abu Dhabi because it is the capital of the UAE and is densely populated and steadily growing. Our expectations are that rents will generally remain high this year and climb farther in the coming years," said Amal Housani, manager of the Abu Dhabi-based Alia Real Estate Management company.