Real estate market trends and price dynamics in Abu Dhabi in 2022

Dubai is the most well-known emirate in the media when it comes to the United Arab Emirates. This applies to places of rest and recreation as well as business and investment.

Real estate investments are no exception.

Dubai has become the face of the UAE: a symbol of the cultural, geographical, and touristic significance for this country. But speaking of real estate, it is important not to forget about another player in the market — Abu Dhabi.

Abu Dhabi is the capital of the United Arab Emirates and the largest of the seven emirates. This city is no less attractive or profitable for investors than its neighbor.

With this in mind, we invite the reader to familiarize themselves with the general characteristics of the local market, the prospects for its development in 2022, and some features of the Abu Dhabi real estate market.

Content:

• The real estate market in the capital of the UAE — Abu Dhabi: general characteristics
• Prospects for the Abu Dhabi real estate market
• The cost of real estate in Abu Dhabi, and how prices will change in 2022
• The areas of Abu Dhabi where investors can buy real estate — freehold zones
• The assistance offered by our specialists

The real estate market in the capital of the UAE - Abu Dhabi: general characteristics

In May 2021, it started to become clear that it was the onset of a stable recovery for the Abu Dhabi real estate market, when the emirate's RPPI price index increased by 1.5% (1.6% - with inflation).

After delays caused by the pandemic, new real estate construction is showing signs of recovery. By mid-2021, the total pool of residential real estate was 265,000 units.

The increase in demand has led to a general rise in prices in most residential communities in the capital. Currently, there is an imbalance in segments — by the second half of 2021, there was a shortage of supply in the villa segment and an oversupply in the apartment segment.

Thus, sellers dominate the villa sector while buyers dominate in the apartment sector.

The state supports the real estate market and provides partial rent refunds, reducing the cost of starting a business, etc.

By the third quarter of 2021:

• The average rental rate for the best 3-5% offers increased by 2.95%.
• The average rental rate for premium segment offices, Class A, B, and C, for the year fell by 6.2, 4.1, 6.5, and 6.4%, respectively.
• By the end of August 2021, average prices in the residential sector increased by 2.2%.

Overall, Abu Dhabi, like Dubai, is in a global growth trend. The tourism and commercial sectors are gradually recovering. EXPO 2020 in Dubai and successful nationwide vaccination have had a positive impact on the UAE economy (including Abu Dhabi).

The UAE’s Purchasing Managers' Index shows that the real estate market in the United Arab Emirates is growing. It is compiled by Emirates NBD, which is the state bank of the UAE and one of the largest in the Middle East.

The index is divided into indicators, below or above 50 points. The figures above show a market expansion, and the ones below indicate its compression.

By the end of the third quarter (i.e. by the end of September), the UAE has an index of 53.3 points. This is lower than the 53.8 points in the previous month (August) but still a robust expansion rate.

Commercial sector

People are returning from remote work to their offices. This indicator in Abu Dhabi is getting closer to the pre-pandemic level. According to Google’s travel data, workplace visits are only 3.7% below the baseline.

However, the number of existing and potential tenants in Abu Dhabi is limited. The main tenants are:

• Firms connected with the state.
• Companies that rent a residential property, who are looking for a more profitable, expensive, and high-quality offer.

The data emphasize that the main interest of buyers is premium properties and high-class properties (class A).

In general, oversupply with low demand makes the market profitable for potential tenants. This imbalance forces sellers to lower their rates. To attract consumers to unpopular segments, the state provides various incentives, for example, rental holidays.

Residential sector

According to a report by CBRE Research for the third quarter of 2021, at the end of August, housing prices in Abu Dhabi increased by 2.2% year-on-year. The price per square meter of apartments increased by 1.9%, and villas - by 3.1% per annum.

The general trend is still an upwards one, but the increase in villa prices is gradually slowing down. Thus, for the periods of three and six months leading up to August 2021, there was a decrease in prices by 0.7 and 1.9%, respectively. Apartment prices for the same periods gradually strengthened by 0.3 and 0.4%, respectively.

The rental price in net terms (i.e. rental payments after all benefits and incentives have been exhausted) has decreased by 4.7% per annum since August 2020. The basis for this was a decrease in the apartment segment by 6.9%.

The average rental price for villas in total terms, increased by 2.6% per annum.

In June‒August 2021, rental rates for apartments and villas increased by 0.4 and 0.5%, respectively.

The number of new housing projects under construction are limited, with only 1,853 units completed at the end of the third quarter. According to the plan, another 9,388 units should be commissioned by the end of 2021, but it is expected that these indicators will not be achieved.

Prospects for the Abu Dhabi real estate market

The weakest sectors are commercial real estate (offices) and the residential real estate – rental segment. Long-term rental prevails in the capital.

Having a short-term lease in Abu Dhabi will soon be a rising trend. This lease is the most profitable in the current economic and political situation, but it is new for the capital.

Short-term rentals are popular with UAE visitors (tourists, workers, and business representatives). This trend should significantly increase the demand for renting real estate in the capital. The areas close to tourist destinations, such as Yas Island, should benefit the most from this growth.

Like Dubai, Abu Dhabi is experiencing an increase in rental rates in the villa and townhouse segment. Demand dominates the market, which cannot satisfy it. This can be seen in areas such as Saadiyat Island and Yas Island.

Oversupply and buyer advantage are found in only a few areas, such as Al Reem Island.

We will tell you more about popular and profitable areas for investment later.

As the figures in the previous section show, the apartment segment, in general, retains an oversupply and shows lower price growth than the villas and townhouses. The loss of jobs also affects price growth.

Overall, residential properties with a large area, open spaces, and gardens are in great demand.

On 22 September 2021, one of the world’s largest international news and financial information agencies, Reuters, with reference to the UAE Central Bank, reported that the UAE economy was projected to grow by 4.2%. The growth of economic activity can have a positive impact on commercial real estate (offices).

Currently, economic activity in the United Arab Emirates has almost reached pre-pandemic levels.

Like Dubai, Abu Dhabi has shown several record-high peaks this year. For example:

• At the end of the second quarter of 2021, Abu Dhabi showed a record increase in property prices over the past five years.
• According to a study by Knight Frank, a residential and commercial property consulting agency, by the end of the third quarter of 2021, the Abu Dhabi real estate market was expanding at a record pace since the year, 2015.
• The stock market increased by 2.6% on the general average direction index or ADX (Ticker. ADI). On 6 December of this year, Reuters reported this fact, despite the spread of the COVID-19 variant, Omicron. A month earlier, on 8 November, the stock market reached historic highs.

Record highs are expected in 2022. However, according to the latest figures from the consulting agency, Knight Frank, 2021 was probably the peak year in the current development cycle of the Emirates real estate sector. Therefore, expectations are not too high.

The data from Knight Frank point to a growing discrepancy in expectations between buyers and sellers, which is often a significant indicator of the start of a slowdown in the market.

The cost of real estate in Abu Dhabi, and how prices will change in 2022

The results from the third quarter of 2021 indicate that rental rates remain stable, and the price of real estate in Abu Dhabi is rising.

The second half of the year is characterized by a smooth upward trend.

According to Bayut and Dubizzl, overall prices in the third quarter increased by 4%. People prefer to buy affordable-segment apartments in freehold areas — Al Reed and Al Ghadeer. The more expensive segment is the coastal areas of Al Reem Island, Al Raha Beach, and Yas Island.

Villas are popular with buyers in expensive coastal areas, such as Saadiyat Island.

Tenants are looking for offers at affordable prices in Khalifa City A. More expensive offers are found in Al Reem Island, Al Raha Beach, and Corniche Area. Villa rentals are popular in MBZ City and Khalifa City A.

Prices for apartments and villas

Saadiyat Island is the most popular area. Typically, this is the place where elite housing units are purchased.

For the third quarter of 2021:

• The price of one square meter of a villa in Saadiyat Island was $4,050.
• Followed by Yas Island with houses going for about $3,260 per square meter.
• Al Raha Gardens ranks third with a price of $2,370 per square meter.

More affordable villas are sold in the freehold zones:

• Al Reef;
• Hydra Village;
• Khalifa City A;
• Shakhbout City.

The most expensive offers in this segment are $2,000 per square meter.

There are luxury apartments in Al Reem Island. Followed by:

• Al Raha Beach;
• Yas Island;
• Saadiyat Island.

These four districts are popular among those with high and super-high income (HNWI) (more than $1 million).

Prices are approximately $3,000 per square meter.

Affordable apartments are most popular in family-friendly suburban areas, such as:

• Al Karamah;
• Al Rowdah;
• Al Mushrif;
• Al Murror.

The prices of the most expensive offers in these areas are in the same price range as the available villas, i.e. about $2,000 per square meter.

Apartments and villas for rent

The highest rental income can be obtained from:

• affordable apartments — 8.2%, Masdar City;
• premium apartments — 7.36%, Yas Island;
• affordable villas — 8.4%, Shakhbout City;
• premium villas — 6%, Al Raha Gardens.

Rental data for the third quarter:

Large apartments (with 4 and 5 bedrooms) are becoming more affordable.

In the third quarter of 2021, the rental rate decreased by 3%. Currently, it is $34,000 and $40,000, respectively.

Apartments in the middle segment, on the other hand, have increased significantly in price — by 14%. The rate was $26,500 at the end of the third quarter of 2021.

Small apartments are most popular in Khalifa City A. They are leased for between $7,350 and $17,000 (the lowest rates are for studios; the highest are for 2-room apartments).

These figures belong to the most popular area — MBZ City.

Villas are in great demand among buyers in Khalifa City A, Al Reef, Shakhbout City, and Al Murror. Prices for villas in the affordable segment are growing — 17%.

Al Bateen is the leader in premium housing — the growth was 13%, and prices were as follows:

• 4-room villas for rent, for $55,000;
• 5- and 6-room villas — $62,500 and $64,000, respectively.

This area is followed by Al Raha Gardens, Yas Island, and Saadiyat Island, with a growth of 12%.

Prospects in 2022

Taking into account the abovementioned data and figures, as well as research by the real estate management companies, Asteco and Knight Frank, we can expect the following changes in real estate prices in Abu Dhabi:

• In early 2022, rental rates will continue to rise. Rental growth for residential and commercial real estate is projected to be 7-9%.
• The UAE real estate market, in general, and Abu Dhabi in particular, will continue to recover with slower growth rates. Both peak figures, and a significant reduction in the commissioning of new real estate, are expected. Prices for luxury real estate are projected to rise by 9-14%.

Haider Ali Khan, CEO of Bayut & Dubizzle and head of the Emerging Markets Property Group (EMPG MENA), noted that many factors influence the state of the market: from minimal restrictions on movement and vaccination success, to targeted incentive measures by state and metropolitan authorities.

Consumers, especially buyers of luxury real estate, are interested in spacious and secluded residential properties.

Abu Dhabi will remain attractive to both buyers and tenants. Evidence of this can be seen in the fact that approximately 3.5 million buyer-seller negotiations were registered in the third quarter alone.

Forecasts indicate that real estate in Abu Dhabi in 2022, may increase in price by up to 20% of its current figures (in September 2021).

According to Willis Towers Watson, an international consulting and risk management company, UAE employers plan to raise wages of employees by an average of 4% in 2022, which, if mortgage interest rates remain low, may also boost demand. In turn, demand will drive up prices.

The areas of Abu Dhabi where investors can buy real estate — freehold zones

Freehold zones are new for Abu Dhabi. Implementation began in 2019, and 13 years later, they were introduced in Dubai.

At present, there are 17 such zones in the UAE capital.

Foreigners can rightfully own property in these zones, unlike real estate in leasehold areas. The latter is a lease of ownership for 99 years, with some restrictions on the disposal of the leased housing.

The lease differs from a typical lease in that the latter involves the temporary use of housing for personal purposes. This is a lease of the right to dispose of real estate, including structural changes if the lessor agrees.

Leasehold is popular in the commercial real estate sector, as many companies need to make changes to the leased housing, to conduct their business.

Although many of these territories have advantages, the following list, for 2021-2022, should also be taken into account:

• Yas Island is a tourist and entertainment area on an artificial island. Residential property prevails here with apartments of different configurations, townhouses, and villas.
• Al Reem Island is an area where expats prefer to live. This is a business center, and in addition to commercial real estate, there is a wide selection of residential real estate — from apartments to townhouses.
• Saadiyat Island is an elite area with high cultural significance and it has residential real estate of the highest price segment.
• Al Raha Beach is a popular area with expats, more suitable for living with a family. There is a range of socially significant institutions, including educational ones, and a large selection of places for leisure.
• Khalifa City A is one of the three Khalifa City communities. Due to affordable properties (especially for rent) and spacious villas, it is suitable for working people. There is also easy access to the city’s main transport infrastructure, including the Abu Dhabi-Dubai highway.

The assistance offered by our specialists

Emirates.Estate specialists offer assistance in choosing and buying real estate in Dubai. Here you can get legal advice, help with document management, market analysis, and other helpful data on real estate in the UAE to make the right choice.