Abu Dhabi needs 28,000 new homes

Abu Dhabi needs 28,000 new homes

The Abu Dhabi Government must intervene quickly to tackle a festering local rent crisis that could scare off investors and create socio-economic problems in the emirate, a semi-official report said yesterday.The report by the Abu Dhabi Chamber of Commerce and Industry (ADCCI) said it was time for a total freeze on rent rises after the caps introduced by the government early this year failed to produce results.It blamed real estate investors for the surge in rents over the past two years and presented a gloomy picture on the situation in the near future. Although it expected sustained increases in rents in the next two years, the report said it would be much slower than the staggering growth in housing costs over the past few years caused mainly by supply bottlenecks and high demand.The report said demand would continue to outrun supply in the housing sector on the grounds most of the new units are mainly intended for high income people. It called for the construction of low-cost houses to solve this problem."There is an urgent need for the authorities in the emirate to intervene to find a solution to this deteriorating problem by enacting legislations and laws regulating the real estate sector and controlling any fresh rent increases in order to bring rents to normal levels and fight inflation," the report said."Tackling this problem must be within the framework of the anti-inflation policy. There is a need now for a strategy that will link demand to supply in the housing sector, devise a rent system for each area and chalk out a housing plan that will meet the needs of the low and medium income people."Its figures showed there was a balance in the housing units in the emirate in 2005, with their number estimated at around 287,000, which were enough to meet demand. In 2006, demand recorded a sharp rise but was not met with a similar growth in supply, leading to a shortage of around 3,000 units. In 2007, the problem worsened because of slow supply, with the gap surging to 13,000 housing units, which is expected to jump to 28,000 this year and more than 70,000 units in 2010, the report said.According to ADCCI, the problem this year was mainly a result of low supply and concentration by investors on high cost houses, villas and hotel apartments.It said this would lead to further rises in rents and this in turn would push up inflation rates on the grounds rents account for at least 40 per cent of the consumer spending in Abu Dhabi."The growing supply shortages in the emirate's housing sector requires a clear strategy for the coming years… the private sector should play a key part in this strategy, which should focus on bridging the supply gap," the report said."What is required now is the need to devise a clear anti-inflation policy and freeze any increases in current rents… there is also a pressing need to construct housing complexes for the low-income workers."While the report expected rents to continue to rise in the near future, it said the increase would be much slower than the rent growth recorded in the past two years, when it exceeded 200 per cent for some units."Barring unexpected developments, the increase in new rents is not expected to exceed five per cent in the next years… as for the new housing units, their rent value could be around 10 per cent higher than the present units," it said."Besides supply bottlenecks, investors have played a key role in pushing up rents in the past two years because they always expect high return from their property investments… such returns have exceeded 140 per cent from some units. "This problem should also be tackled because a sustained increase in rents will have adverse effects on the domestic economy as they will scare off investors and create negative social and economic phenomena… this should prompt authorities to encourage the private sector to embark on projects to build low-cost houses as part of measures to end this crisis."After many years of relative stability during 1990s and early 2000s, the real estate market in the capital was jolted in 2006 when strong domestic demand caused by an economic upsurge created supply bottlenecks and sent rents to record high levels despite a recent government decision to introduce rent caps.But such caps have failed to stop a rapid rise in rents, which have been blamed along with high food prices and other factors for soaring inflation in the UAE."Most of the housing units that will enter the market this year will cater to the high income people… the low and medium-income people will be the main victims of the shortage and the rent increases," ADCCI said."This year we expect that there will be a record supply shortage in housing units, exceeding 20,000… this will aggravate the emirate's property situation and push it from bad to worse… the increase will affect all economic activities in the emirate and could push inflation to new record levels."Property dealers said Abu Dhabi rents generally jumped by more than 25 per cent in 2007 and 15 per cent in the first quarter of 2008. They continued to rise through the second and third quarters and are expected to maintain that trend through the year. Dealers see another 20 per cent growth during the rest of the year.Other factors pushing up rents include a rapid growth in the population, an intensifying influx of expatriate workers because of a surge in projects in Abu Dhabi and other emirates, failure of many landlords to comply with the rent caps and a surge in the prices of construction materials.In recent statements, the President of the Abu Dhabi Department of Planning and Economy, Nassir Al Suweidi, said the government had asked major property developers in the emirate to build low-cost houses to curb soaring rents. He said this would partly tackle the problem but added it would take time.Officials said such houses are needed on the grounds the bulk of the emirate's 600,000-strong workforce are low to medium-income employees.The rapid increase in rents in the capital over the past two years has rendered many of them unable to get their own apartment as the increase sharply widened the gap between the rent and their monthly wages.In terms of GDP per capita, Abu Dhabi has one of the highest incomes in the world, standing at Dh215,000 in 2007 and a projected Dh225,000 in 2008. But many workers in the private sector are considered underpaid while their financial position has worsened over the past two years because of inflation."Buildings under construction in Abu Dhabi this year will meet only 20 per cent of the demand. This will further widen the supply shortage and will combine with a rapid population growth to push rents to new record high levels," the chamber said.Figures by the Department of Planning and Economy showed the emirate's population surged by 12.6 per cent to 2.14 million in 2007 from 1.9 million in 2006, one of the highest growth rates in the world. It is expected to grow by around 7.5 per cent to 2.3 million this year.

ADCCI PROPOSALS- Tackling rents within anti-inflation measures- Introduction of a rent system for various areas- Devising a strategy to link demand and supply within the economic and demographic expansions in the emirate- Chalking out a housing plan involving the construction of low-cost houses- The need for authorities to intervene- Encouraging the private sector to build housing complexes for low-income workers- Regulating the activities of real estate agents and banning illegal commissions- Issuing licences for villas to be used as offices- Construction of government department complexes

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