End of rent cap, low charges give Abu Dhabi an advantage

January, 01st 2014

Dubai: With more high-rises getting delivered, especially in the Reem Island cluster, Abu Dhabi’s property market is intent on getting on to the cash-ready investors’ radar at the earliest. It now has the serious competitive advantages to present its case as well.

"For a new investor intent on optimising yields with a medium-term perspective, the 2 per cent registration charge in Abu Dhabi compares extremely favourably with the 4 per cent now charged in Dubai," said Ranjeet Chavan, director at SPF Realty.

"There has been increased investor attention on Abu Dhabi after Dubai doubled the charges. Ideally, investors would look to any option available to keep their initial exposure costs as low as possible."

While maintaining the status quo on registration charges is one plus, Abu Dhabi will also look to score with investors by the withdrawal of the 5 per cent cap on annual rental increases. What it means is that investors letting out their properties will not be bound any longer on what they can demand from the second year onwards. In other words, they can have a clearer indication of how their future yields can stack up. (Whether tenants can share in such sentiments is a completely different story.)

Steady supply of new stock

But are there enough properties available in the secondary market for investors to go for? "There are... with each new high-rise completion it creates a steady supply of new stock and this has been consistent in recent quarters," said Chavan. "What has happened is that some developers have got repossessed properties that were initially sold at the market peak of Dh1,800-2,000 and which are available at Dh1,100-1,400 or so now. For investors buying now, that leaves room for future upward mobility on values."

All of the action so far is on properties either completed or on the verge of being so. Unlike Dubai, which had seen a steady flow of off-plan projects last year, Abu Dhabi’s realty has made do with existing developments. Could increased investor attention spur developers to go for new ventures?

"Most developers have learnt their lesson the hard way and most had their fair share of issues during the crisis," said Mohammad Al Habech, chief commercial officer at Hydra Properties. So, everyone now is taking their time, either looking carefully at new projects or re-launching original projects at slower pace.

"In the short term, positive market sentiments and Abu Dhabi’s fairly discounted market price in comparison to Dubai should make investors look deep into grabbing units for a short- to mid-term hold. In addition, the new government policy for housing allowance has also positively impacted on demand."

Source: Gulfnews.com