Colossus Real Estate’s sales manager, Jameel Chahal, gives his advice on when and how to purchase a property in the capital
As veterans in the Abu Dhabi real estate industry, our clients look to us to answer their questions and obtain up-to-date information about the market as a whole. In the UAE and Abu Dhabi, prices can change with extraordinary speed. It’s easy to get burned if you are making decisions based on old, inaccurate or incomplete information. Below are some of the top questions asked by people looking to buy or sell real estate in the different investment zones of Abu Dhabi.
Is it a good time for me to purchase an investment property? If so, where?
While there are good opportunities in select investment zones, it is important to look at the market history over the last year to understand why some areas and buildings offer more potential to the investor.
The upward movement in the residential market continues to be fuelled by an excess requirement for end-user space as companies ramp-up and bring in more expats, as well as increased market confidence fed by strength in the overall economy.
Over the second quarter of 2014, property rates have stabilised in the key investment zones of Reem, Raha and Saadiyat. In some areas, there has been no change in pricing, however, availability of residential units priced at a rate that will permit transfer, remains scarce in these zones.
Investors looking to purchase residential units for rental income have scaled back, as yields begin to dwindle. Over the last year, sales prices on Reem Island have increased 30 to 40 per cent whereas rental increase averaged only 5 to 10 per cent. In Saadiyat, prices are up 25 to 35 per cent with rent increasing between 8 to 13 per cent. In Raha Beach the sales increase is highest at 40 to 50 per cent, with rent increases of 15 to 20 per cent. As a result, yields have dropped over the same period.
In order for property prices to continue to rise quickly, rent rates need to increase in order to meet investor requirements. Companies continue to expand and hire, creating more end-user demand. However, even with the removal of the five per cent rent cap, the government has created guards against rapid rent escalation.
Several large government-backed organisations have recently changed their housing policies and now require single employees to reside in two-bedroom apartments.
However, the single employee allowance has not increased enough for two-bedroom units in Reem, Raha or Saadiyat. As a result, these employees have been forced to pay the difference out of pocket or find accommodation outside the key zones.
While yields in Raha Beach are very attractive, the investor must also consider that these properties have appreciated the most over the last year. Reem Island is an attractive option for good rental yield and capital appreciation. Not only do I predict rental rates to rise faster in Reem (rent growth has been temporarily stunted by a flood of vacant units released in Gate and Arc Towers), the slower growth in property value means prices can increase at a faster rate, and rent increase in 2014-2015 should outpace the rest of the market.
Pinpointing areas that have the potential for accelerated appreciation can be tricky, as there are many factors to consider. At present my recommendations are Reem Island and Al Ghadeer.
Is it a good time for me to purchase a family home?
We can transfer most of the above advice for investors to the end user to reassure the purchase decision. Although the end user will be more concerned about the physical details of the property, at some point most owners will decide to either sell or rent out their properties. Assuming the purchaser has already considered their budget and that their rent allowance will be used to pay off a mortgage or transferred to savings, the end user should also consider that while residing in the property it will likely increase in value and could become very profitable. The homeowner is also protected from steep rental increases and will not be forced to relocate if the rent becomes unaffordable. If you are ready to assume the responsibility of home ownership, now is as good a time as any to become a homeowner.
I’ve owned a property now for several years that has become modestly profitable to sell. Should I sell now or wait for prices to further increase?
Consider the above advice to investors: Do you own in an area that has already experienced high growth? If so, you may consider selling and putting the proceeds towards a purchase in an area with higher growth potential to benefit from increased capital appreciation in less established zones.
If you are happy with your returns after all expenses, hold it; if you are expecting sales prices to continue to grow at the rates seen over the last year, you may be setting your expectations too high.
