Abu Dhabi experiences substantial growth in the real estate sector for 2014, 2015 looks more promising

With Villa sales prices rising by 16% and apartments up by 15%, looks like the 2015 real estate market would be a lot better and healthier.

Even rental rates increased by 10%, and 9% for apartments and villas respectively. This means that the demand for prime spaces continues to grow.

As a matter of fact, investors in the real estate sector in Dubai and Abu Dhabi can expect sustained rental growth and relatively stable capital values in 2015, due to the strong performance in 2014 (according to the latest Abu Dhabi real estate report from Middle East’s largest independent full service real estate company, Asteco).

In the Abu Dhabi Property Review: 2014 Highlights & 2015 Outlook, Asteco noted that Abu Dhabi’s real estate market had strengthened over the recent years and this trend is set to continue in 2015, with continued rental growth across all sectors, encouraging investment.

Average sales rates for apartments increased by 15% and villas 16% in 2014, with a strong performance in H1, and stability throughout the year. Additionally, volume of transactions declined in H2 due to the shortage of quality stock for sale in the secondary market, quite a welcome news in the real estate sector. The high sales volumes experienced at the newly launched projects in Ansam, Al Hadeel and Mamsha Al Saadiyat proved that demand for quality projects exists.

“Popular master-planned developments for sale included Saadiyat Island and Al Raha Beach while Reem Island proved to be an attractive area providing more mid-market units. We expect apartment sales prices to remain stable this year as the market becomes more competitive due to the imminent handover of new projects,” said Jerry Oates, General Manager, Asteco Abu Dhabi.

Year-on-Year comparisons starting from 2008 to 2014 highlight the continuous apartment sales price growth since 2012, up on average by 48% for all areas combined. Sales prices in Al Muneera at Al Raha Beach is now rated at AED 1,425 per square foot on average, up 21% compared with last year. Meanwhile, rates at Reef Downtown also climbed 21% to an average of AED 1,000 per square foot. Marina Square also saw a 17% increase to an average of AED 1,375 per square foot.

Villa sales prices witnessed strong growth too, growing 47% on average for Al Raha Beach, Golf Garden and Al Reef Villas during the period.

According to the report, the villa sales market will not be experiencing any drastic movement as there will be limited prime and high-end projects available for sale in the primary and secondary markets in 2015.

Rental rates for apartment were up by 10%, while villas rentals rose by 9%. A prime two-bedroom apartment currently rents for AED 175k-180k per annum with high-end units achieving AED 140-175,000.  Mid to low-end units records an affordable AED 90k-120k.

Villa rental rates are expected to increase during 2015 due to a shortage in quality villa units with occupancy rates expected to remain high.

An average four-bedroom villa could be leased for AED 239,000 per annum in Q4 2014.

The biggest increases in rental rates in 2014 were on Saadiyat Island and Marina Square on Reem Island. The year was also marked by a positive level of transaction activity as tenants continued their flight to quality.

New mid to high-quality developments at still relatively affordable rents are encouraging relocation by tenants to upgraded accommodation, with older properties and lower quality projects being placed under increased rental and occupancy pressure.

The Abu Dhabi rental market in 2015 is expected to see continuous strong levels of demand. A range of new projects are due for handover in 2015 including an anticipated 13,000 apartments and villas which will come online, will have an impact on the Abu Dhabi real estate market by creating greater competition, particularly in apartment rents. - Jeremy Oates

Asteco expects this to continue in 2015 with occupancy rates in popular developments maintaining their current high levels. 

“The Abu Dhabi rental market in 2015 is expected to see continuous strong levels of demand. A range of new projects are due for handover in 2015 including an anticipated 13,000 apartments and villas which will come online, will have an impact on the Abu Dhabi real estate market by creating greater competition, particularly in apartment rents,” said Oates.

Abu Dhabi’s office market was stable in 2014, as landlords of single-owned buildings maintained their asking rates. However, it is anticipated that as new developments such as ADDAX Tower on Reem Island hand over during the year, rates for multiple-owned office space in the Investment Areas could come under pressure as individual landlords compete to secure tenants. 

Since 2013, the Abu Dhabi real estate market has continued to strengthen, a trend Asteco predicts to continue throughout 2015.

Source: Roots Land Real Estate

Mortgage Watch FAQ's By Home Matters

After the worldwide financial crisis, banks seem to have rebounded very well. The recent introduction of non-resident and under construction finance proves that banks are getting more confident in the state of the economy and this has potential borrowers buzzing. Banks have vastly improved their products. They are not as complicated as they once were and their charging structures are now very linear.

WHAT TYPES OF MORTGAGE RATES ARE THERE IN THE UAE?

There are three types of mortgage rates currently available in the UAE: fixed rate, EIBOR rate, and variable rate. The fixed rate is a mortgage that has a fixed interest rate for a term between 1 to a maximum of 5 years. The benefit of a fixed rate mortgage is that the home owner will not have to contend with varying loan payment amounts that fluctuate with interest rate movements. Upon expiry, the fixed rate will revert to either a bank variable rate or to an EIBOR linked rate. EIBOR rates are set by the Central Bank. The Emirates Interbank offered rate (EIBOR) is the average interbank borrowing rate of 11 lending banks and published daily on the central bank website and deemed completely transparent. Lastly, the variable rate is usually predetermined by the bank itself. It takes into account various factors such as internal costs, liquidity, risk, and default rate among other factors.

WHAT IS THE MAXIMUM AMOUNT I CAN BORROW AGAINST A PROPERTY?

Lending prior to 2014 was available at up to 85% for expats and 90% in some cases for UAE Nationals. However due to a change in Central Bank policy, all lending for expats has now been capped at 75% loan to value for property prices under 5 million AED and 65% loan to value for purchases above 5 millon AED. UAE Nationals can secure a further 5% uplift on these loans. All second property and/or investment property is now capped at 60%, with off plan/under construction being capped at 50%.

Affordability is one of the main drivers of whether a mortgage can be sought or not and at what level. We have perhaps all heard of the Debt to Service ratio, but what is it and how does it apply? The debt service ratio (DSR) in the UAE is the affordability calculation set by the central bank. In a nutshell, if you add up all of your monthly liabilities, plus your projected new mortgage repayment, this amount cannot exceed 50% of your monthly income.

IS ‘UNDER CONSTRUCTION’ FINANCE AVAILABLE FOR ALL DEVELOPMENTS?

Only a handful of banks will lend on certain off plan developments and usually only to the bigger developers in Dubai (Nakheel, EMAAR and Dubai Properties), however with the influx of under construction or off plan units and developments available, the banks are currently re-positioning their stance with a view to adding more developments.

CAN A NON-RESIDENT SECURE A MORTGAGE IN THE UAE?

Non-residents can now access finance at up to 75% with rates as low as 4.75%, however the choices are limited. With Expo 2020 looming, we are seeing a sharp increase in enquiries from non-residents who are contemplating an investment in the UAE real estate market.

HOW LONG WILL THE MORTGAGE TAKE TO PUT IN PLACE?

The average time frame for most mortgages is around 4-5 weeks in total. Therefore, do not be fooled by anyone who tells you that a final mortgage approval can be done in 5 working days: it is extremely rare. The mortgage process becomes more arduous when the bank providing you with the mortgage has to clear the mortgage of the seller. This process can add an additional 2 weeks to the overall time frame.

AM I PAYING TOO MUCH FOR MY MORTGAGE?

This could be the case, especially if you purchased within the years 2005-2010. Interest rates were high at that time. It would be advisable to consider a review of your existing facility with a view to refinance to a better rate and/or more flexible product. Some banks offer reduced or zero processing fees for clients looking to change lenders.

CAN I RELEASE SOME EQUITY FROM MY EXISTING PROPERTY?

Most banks will allow you to remortgage your existing unit to release funds. Some banks limit their loan to values and others would only allow an equity release for a specific purpose i.e. to purchase a further property in the UAE. The same affordability model applies as a purchase; however, the costs associated are a lot less as there is no agent or land department transfer fees.

WHY SHOULD I USE A BROKER OR CONSULTANT?

A good mortgage broker would have contact with many different lenders and access to discounted pricing and favourable terms that individual borrowers can’t access.

Home Matters have a large market share, have been established in Dubai real estate since 2006 and is the biggest consultancy in the UAE, both in terms of staffing numbers and volumes of business placed with the banks. This gives us some leverage, and from time to time, can offer our clients better rates and terms compared to applying directly to your bank. In many cases, we also achieve faster turnaround times.

One thing to check when dealing with brokers or consultants is their independence! Are they independent from a bank(s)? Are they independent from a realtor? Committing to a mortgage should be no different. Why should anyone run the risk of trying to tackle the sourcing of a mortgage without seeking the best independent advice?

Source: Roots Land Real Estate