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The Abu Dhabi AnalysisMarket Performance, Trends and Affordability

White Paper

Measuring Affordability Levels in Abu Dhabi | UAE

December 2014

Addressing The Housing Gap | December 2014 | Abu Dhabi | Colliers International2

Ian Albert

Regional Director | Middle East

Colliers International

[email protected]


Colliers International is a global leader in commercial real

estate services with over 15,800 professionals operating out

of more than 485 offices in 63 countries. Colliers

International delivers a full range of services worldwide that

includes: valuations, consulting, appraisals, brokerage, asset

management and research, within the residential,

commercial, retail, hospitality, healthcare, education,

infrastructure sector, Public Private Partnership (PPP) and

economic and industrial free zones. In MENA Colliers

International has provided leading advisory services through

its regional offices located in Dubai, Abu Dhabi, Riyadh and

Jeddah since 1996. The latest annual real estate survey by

Euromoney named Colliers International ‘Best Advisor’ in

the MENA region, UAE, Qatar and Saudi Arabia.

Introduction

Affordability is a relative measure, especially in an

undersupplied market, with a high per capita income, such

as Abu Dhabi.

Affordability in the housing market is highly pertinent to

Abu Dhabi owing to the limited supply in the market. The

lack of mid-market properties has been addressed by the

government; the Urban Planning Council (UPC) in 2010

announced that at least 20% of new residential

developments need to be set aside for middle income

residents. Developments applicable under the guideline are

projects involving a minimum of 75,000m² of housing

(villas/ townhouses are excluded).

A commonly accepted guideline globally for housing

affordability is when accommodation costs are within 30%

of a household's gross income. However, according to the

latest income and expenditure survey published by the

Statistics Centre Abu Dhabi, it is the accepted guideline

that expatriate households spend 37% of their income on

housing. This percentage is only likely to increase in the

future due the combination of an acute undersupply and a

growing population.

With 72% of households in Abu Dhabi (excluding blue

collar workers) earning between AED9,500 and

AED32,000 per month, the majority of residents can afford

rental levels between AED43,000 and AED140,000 per

annum. These rental levels are based on the average

expatriate household spend in the capital (37% of

household income).

While the provision of affordable housing involves

important social and economical values, our focus in this

whitepaper is aimed at highlighting Abu Dhabi’s overall

residential market performance, trends and some strategies

for addressing the growing demand for affordable housing

towards a sustainable and competitive asset class.

The availability of affordable housing not only improves

worker and employer attraction and retention, but it also

increases the overall spending power of households. These

households can then afford to improve their existing

quality of life by increasing their spending on vital social

infrastructure facilities such as better levels of education

and healthcare for their families.

Mansoor Ahmed

Director | Development Solutions


[email protected]

Mariam Mahmooth

Associate Manager | Development Solutions


[email protected]


Demand Vs. Supply

The gap between residential demand and supply is

currently -21% across Abu Dhabi, indicating a

significantly undersupplied market. This gap is

expected to reach -31% in 2018, provided existing

developer timelines are met.

Colliers International estimates that an additional

47,900 housing units are due to enter the market

during 2014 – 2018, representing an annual increase of

3.6%. Despite the increase in supply, high population

growth rates of 5.5% per annum combined with

declining household sizes are expected to maintain an

undersupplied residential market in the capital during

the short to medium term.

“With demand growing at a higher rate than supply, in an

already undersupplied residential sector, market fundamentals

are likely to remain undersupplied in the short to medium

term”

Exhibit 3: Average Household Size

Exhibit 2: Abu Dhabi Residential Demand and Supply

Source: Colliers International

Source: Statistics Centre Abu Dhabi, Colliers International

Estimates

7.5

5.4

6.1

5.2

4.3

0

1

2

3

4

5

6

7

8

1980 1985 1995 2007 2009

-

500,000

1,000,000

1,500,000

2,000,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2013 2014 2015 2016 2017 2018

Undersupply Supply Demand

Exhibit 1: Abu Dhabi Metropolitan Population

Undersupply: 31%

Undersupply: 21%

CAGR 5.5%

Addressing The Housing Gap | December 2014 | Abu Dhabi | Colliers International

Affordability in the

Rental MarketAffordable housing takes many different forms, and

this whitepaper uses the term to define all housing units

at levels affordable to average households in Abu

Dhabi.

Analysing the latest available income and expenditure

surveys published by the Statistics Centre Abu Dhabi

(SCAD), suggests that an accepted guideline for

spending on accommodation is approximately 37% of

their income. This number however, is likely to

increase as a result of the removal of the rental cap (Q4

2013) in a market that is acutely undersupplied.

This ratio is significantly higher when compared to a

number of established international benchmarks, such

as the Department of Housing and Urban Development

(USA) and NSW Government (AUS), where the

accepted definition of affordability is for a household

to pay no more than 30% of its annual income on

housing. In the UK, The National Housing Federation

defines affordable rent levels at 25% of household

income.

4

With rental levels increasing at a significantly higher rate

than average income, affordable housing in Abu Dhabi is a

limited commodity.

The distribution of income levels in the capital suggests that

41% of total households are earning less than AED9,500 per

month. As households in this income category are generally

provided with accommodation by their employers (mainly

comprising of contractors, hospitals, hotels and retailers), or

are living in shared/alternative accommodation facilities,

they are omitted from the study.

Analysis of monthly household income levels also suggests

that 44% of households* earn between AED9,500 and

AED19,000. At this income bracket, they can afford rental

levels between AED42,000 and AED85,000 per annum.

Households earning between AED19,000 and AED32,000 a

month, represented by 28% of households, can afford rentals

ranging between AED85,000 and AED140,000 per annum.

The highest income bracket represented by households

earning AED32,000 and above per month are 28% of

households. Rental affordability at this top tier of the market

starts at AED140,000 per annum.

Source: Colliers International* Total households excluding households in company/ shared accommodation

Exhibit 4: Monthly Household Income Distribution in Abu Dhabi

AED 12,621 AED 15,777 AED 18,932 AED 22,088 AED 24,542 AED 28,399 AED 31,554 AED 34,710 Above

AED 9,466 AED 12,621 AED 15,777 AED 18,932 AED 22,088 AED 24,542 AED 28,399 AED 31,554 AED 34,710

44% of Households* 28% of Households*

Rental Affordability:

AED42,000 – AED85,000 p.a.


AED85,000 – AED140,000 p.a.


AED140,000+ p.a.

28% of

Households*


“44% of households* in Abu Dhabi can afford rentals between

AED42,000 and AED85,000 p.a.”*Total households excluding households in company/shared accommodation


Rental RatesAverage rents across Abu Dhabi increased 11% year-on-

year (Avg. 2013 – Avg. 2014). Compared to 2008

however, average rents are currently 49% below the peak.

While newer established residential developments such as

Al Raha Beach and Al Reem Island continue to witness

significant increases in rentals, more affordable housing

locations such as Mohammed Bin Zayed City, Markaziya

and Al Zahiya have witnessed the highest increases in

rental rates YOY (10%), highlighting the growing demand

for more affordable housing.

The combination of increasing population and the removal

of the rent cap* is expected to maintain the upward trend

in rental rates, until the supply gap met.

*The rent cap was introduced in 2006 and was set at 5% in 2010,

before being removed in November 2013.

“More affordable housing locations such as Mohammed Bin

Zayed City, Markaziya and Al Zahiya witnessed the highest YOY

rental increases”

Exhibit 5: Average Rental Rates in Key Residential Districts across Abu Dhabi


Exhibit 6: Average Rental Rates per m²


-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

-

500

1,000

1,500

2,000

2,500

2008 2009 2010 2011 2012 2013 2014

YO

Y G

row

th

AE

D p

er

m²

Rent YOY

- 49%

0%

2%

4%

6%

8%

10%

12%

-

50,000

100,000

150,000

200,000

250,000

Corniche Markaziya(City Centre)

Khaldiya Al Zahiya(Tourist Club

Area)

MohammedBin Zayed

Al RahaBeach

Al ReemIsland

Al ReemIsland-MarinaSquare

YO

Y G

row

th

AE

D p

er

Annum

1BR 2BR 3BR YOY Growth


According to Colliers’ Rental Affordability Analysis,

households earning AED15,000 can afford rentals

across areas such as Mohammed Bin Zayed City and

Markaziya. There are a number of households within

this income bracket that occupy units in more

expensive locations, however, they are spending more

than 37% of their annual income doing so.

Exhibit 7 highlights rental options across key

residential locations for two sample households in Abu

Dhabi; households earning AED15,000 per month and

a household earning AED35,000 per month

7


Affordable Unaffordable

Exhibit 7: Rental Affordability Analysis : A comparison between two households

(1) Household earning AED15,000 per month (2) Household earning AED35,000 per month

As graphically illustrated, those earning AED15,000 per

month are not only limited by location, but are also

restricted to one bedroom units within these areas. The

only two bedroom units that are even marginally

affordable are those in MBZ City.

Rental options for households with a monthly income of

AED35,000 are spread across many locations, albeit the

majority are limited to one bedroom and two bedroom

apartments. Households requiring a minimum of three

bedroom units can afford these larger units in MBR City,

Markaziya, Al Reef Downtown and Al Zahiya (TCA).

“Households earning AED15,000 or less, represent 33% of Abu

Dhabi’s residential market, but are limited for rental options

across areas such as Mohammed Bin Zayed City and Markaziya,

and that too within one bedroom units. One bedroom units in

Markaziya and Al Zahiya, as well as two bedroom units in MBZ

City are also affordable, albeit marginally”

Monthly Income: AED15,000

Locations 1 BR 2 BR 3 BR

Corniche

Markaziya

(City Centre)

Khaldiya

Al Zahiya

(Tourist Club

Area)

Mohd Bin Zayed

Al Raha Beach

Al Reem Island

Al Reem Island-

Marina Square

Saadiyat Island

Al Reef

Downtown

Monthly Income: AED35,000

Locations 1 BR 2 BR 3 BR

Corniche

Markaziya

(City Centre)

Khaldiya

Al Zahiya (Tourist

Club Area)

Mohd Bin Zayed

Al Raha Beach

Al Reem Island

Al Reem Island-

Marina Square

Saadiyat Island

Al Reef

Downtown

Marginally Affordable


Rental Rates in Primary Apartment Districts

According to Colliers’ Rental Affordability Analysis,

households earning between AED10,000 – AED22,000

can afford to rent apartments in MBZ City. Households

with a minimum income of AED14,700 can afford

apartments in Al Zahiya (TCA), Markaziya and

Khalidiya. Renting an apartment in the Corniche, Al

Reem and Al Raha Beach would require a minimum

monthly income of AED20,000.

Exhibit 8 maps rental options by household income

levels across popular apartment locations in Abu

Dhabi. Exhibit 9 illustrates the distribution of

affordability levels by area.

8


Exhibit 8: Rental Affordability Analysis : Affordability in Popular Apartment Districts

“While Mohammed Bin Zayed City is affordable to nearly all

households in Abu Dhabi, Al Raha Beach is affordable to only

29% of households”

AED 10,000 – AED 22,000+ AED 14,700 – AED 38,000+ AED 20,000 – AED 48,000+

Household Monthly Income

0%

20%

40%

60%

80%

100%

Moh

am

ma

d B

inZ

aye

d

Mark

aziy

a

Al R

eef

Dow

nto

wn

Tou

rist

Clu

b A

rea

Kha

ldiy

a

Al R

eem

Isla

nd

-M

arin

a S

qua

re

Co

rnic

he

Al R

eem

Isla

nd

Saa

diy

at Is

lan

d

Al R

aha

Bea

ch

Exhibit 9: Distribution of Affordability Levels of

Households by Area


“Sales prices have increased 27% YOY.

The highest increase was witnessed in Al Raha Beach at 32%”

Affordability in the

Sales MarketSimilar to the rental market, sales prices in Abu Dhabi

have also witnessed an upward trend since 2012.

In 2014, average sales prices across freehold units in

Abu Dhabi increased by 27% YOY (Avg. 2013 – Avg.

2014). Al Raha Beach remains a popular investment

asset class, witnessing the highest YOY increase of

32% compared to all freehold developments illustrated

in Exhibit 11.

Increasing rentals, and limited freehold supply in Abu

Dhabi’s residential market is likely to improve investor

appetite in the short to medium term.

Exhibit 11: Average Sales Prices by Location – Q3 2014


Exhibit 10: Average Sales Prices


-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

-

5,000

10,000

15,000

20,000

25,000

2008 2009 2010 2011 2012 2013 2014

YO

Y C

hange

AE

D p

er

m²

Sales YOY Change

0%

5%

10%

15%

20%

25%

30%

35%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

Al ReefDowntown

Al ReemIsland

Al RahaBeach

SaadiyatIsland

YO

Y G

row

th

AE

D p

er

m²

Sales Price YOY Change


“Colliers International’s Mortgage Affordability Analysis suggests

that, 67% of Abu Dhabi’s households* can afford mortgage

payments for properties AED1 million and below”*Total households excluding households in company/shared accommodation


Colliers International’s Mortgage Affordability Analysis

suggests that, 67% of Abu Dhabi’s households can afford

mortgage payments for properties AED1 million and

below.

Properties priced AED2 million or less require monthly

installments up to AED8,200. These payments are

affordable by 39% of households.

Properties priced AED2 million and above require

mortgage payments in more than AED8,200, and therefore

are affordable by 24% of households.

Mortgage

AffordabilityMortgages available for expatriates in Abu Dhabi

generally require a minimum average monthly income

AED15,000 (some banks set the minimum income at

AED20,000), along with a down payment of 25% of the

property’s value.

Interest rates vary significantly and are dependent on

both the terms of the lender as well as the credit rating

of the borrower.

Exhibit 12 illustrates the monthly instalments payable

on a sample of properties of which the values range

between AED 1 million and AED 5 million.

Assumptions used to calculate mortgage payments:

•Interest rate: 4.25% reducing rate

•Repayment period: 25 years

•Borrowers’ leverage: 35% of income

•Down payment: 25% of property value


“The mortgage instalment for a property priced AED 2 Million is

AED8,200 per month – a 35% leverage of a resident earning

AED23,000 per month.”

Exhibit 12: Average Monthly Instalments for Mortgages Based on Property Value

39%

Affordability by % of

Households

< AED 2 Million

Property ValueAvg. Monthly Instalment

for Mortgage

< AED 8,200

< AED12,200< AED 3 Million

< AED16,300< AED 4 Million

> AED 5 Million

4%

Distribution (%) of

Existing Freehold

Apartment Units

24%

48%

67% < AED 1 Million < AED 4,100 6%

41%

> AED20,300


Affordability in

Freehold SupplyColliers’ research suggests that there are just over

16,000 freehold apartments handed over in Abu Dhabi;

6% of which are priced below AED1 million, and as

previously mentioned require a mortgage payment of up

to AED4,100 per month. These properties are

affordable to 67% of Abu Dhabi’s households; clear

mismatch between demand and availability of suitable

and affordable supply. The market gap is graphically

illustrated in Exhibit 13.

Freehold apartments priced between AED1 million and

AED2 million represent 48% of supply, while demand

for these properties are characterised by 39% of

households.

Freehold apartments priced AED2 million and above

comprises 45% of supply. However, based on mortgage

affordability, demand for these properties are

represented by 24% of households, highlighting a

possible oversupply within the higher price category

(considering only the resident market).

It is Colliers’ opinion that the mismatch between

affordability and the availability of suitable housing,

needs to be addressed when planning future

developments.

Exhibit 14: Distribution of Freehold Apartments by Price*

Source: Colliers International*Units AED4 Million+ represent <1% of the market


Exhibit 13: Identifying the Market Gap – Demand & Supply by Price Levels (Based on the Resident Market)

Exhibit 15: Freehold Apartments by Unit Type

< AED 1 Million


Studios 1 Bedrooms

67%

39%

24%6%

48%

45%

0%

10%

20%

30%

40%

50%

60%

70%

80%

< 1 Million 1 Million - 2 Million 2 Million+

Demand Supply

< AED 1 MillionAED 1 Million - AED 2 MillionAED 2 Million - AED 3 MillionAED 3 Million - AED 4 Million

Undersupply Oversupply

“The combination of limited supply and upward rental trends in

Abu Dhabi has resulted in an increased appetite for end-user

investment. Al Reef 2 for example, is a popular development

among owner occupiers, given its affordability”


“In order to prevent prices reaching unsustainable levels, governments

regionally and internationally implement price controls to regulate the

market and protect the interest of all parties”

The Impact of Increasing Real Estate Prices

Increased Real Estate Prices/

Rents

Lower Disposable

Income

Lower Spending on Vital Social Infrastructure Facilities

(Healthcare & Education)

Lower Spending on Retail, Leisure and

Entertainment

Lower Standards of

Living

Market Becomes Unattractive for much needed expat skilled

labour

High LabourCosts

Loss of Market Competitiveness


Land infrastructure by the government is leveraged against

social infrastructure and greater returns to the local

economy. Revenues can take the form of fees for

permissions, zoning, and utilities, or they can reflect sales,

income, or fees generated by construction related

economic activity.

Having access to housing that is affordable by the majority

of households clearly results in both social and economical

benefits.

With innovations in low-cost building technology (cost-

effective construction methods, and not low-build quality)

being applied across the globe, developers in Abu Dhabi

can combine these mechanisms to effectively service the

increasing demand for affordable housing.

It is Colliers’ opinion that offering more government

incentive programs, access to well located and service

land, affordable developer financing options, and Public

Private Partnerships will increase the availability of

housing units that are affordable to the majority of

households.

Developing

Affordable

Communities

SuccessfullyThe development of affordable housing represents great

potential to Abu Dhabi. Despite UPC’s attempt to

address this market gap by means of planning

guidelines, the acute undersupply of residential units

persists.

Affordable housing when developed effectively, can

provide high returns for investors. Community facilities

such as neighbourhood retail, schools, healthcare

services and leisure facilities can generate significant

additional revenue for the developer, whilst maintaining

affordable rental levels.

Developing a community integrated with such facilities

in well connected locations (easy access to the main

arteries, and public transport network), attracts high

occupancy rates and retains the value of developments.

Public Private Partnerships between developers and the

government can also assist to increase the availability of

more affordable residential communities in Abu Dhabi.

Conclusion

As seen globally, governments are actively involved in

providing developers access to well located and

serviced land, home investment partnership funds, and

favourable developer financing options as active

incentives for developers to develop affordable housing.


“Public Private Partnership (PPP) is a potential way for developing

Affordable Housing in partnership with Private Developers”

Exhibit 16: Primary Benefits of Affordable Housing

Exhibit 17: Key to Successfully Developing Affordable

Housing Communities


Economic Benefits Developer Benefits

Revenues can take the form of fees for permitting,

zoning, and utilities, or they can reflect sales,

income, or fees generated by construction related

economic activity.

Improving Worker and Employer Attraction and

Retention.

Increasing the Buying Power of Residents.

Incorporating revenue accelerators (retail / F&B,

healthcare and educational facilities) within

affordable housing communities are likely to increase

the developers’ overall returns on the project.


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About Colliers International

Colliers International is a global leader in commercial real estate services, with over 15,800

professionals operating out of more than 485 offices in 63 countries. Colliers International delivers a

full range of services to real estate users, owners and investors worldwide, including global corporate

solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation,

consulting and appraisal services and insightful research. The latest annual survey by the Lipsey

Company ranked Colliers International as the second-most recognized commercial real estate firm in the

world. In MENA Colliers International has provided leading advisory services through its regional

offices since 1996. Colliers International currently has four corporate offices in the region located in

Dubai, Abu Dhabi, Riyadh and Jeddah.

colliers.com

Copyright © 2013 Colliers International.

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been

made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are

encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

$2.1billion in

annual revenue

1.46billion square feet

under management

15,800professionals

and staff

485 offices in

63 countries on

6 continentsUnited States: 146

Canada: 44

Latin America: 25

Asia Pacific: 186

EMEA: 84

For further information,

please contact:

Ian Albert

Regional Director | Middle East

+971 4 453 7400

[email protected]

Mansoor Ahmed

Director | Development Solutions

+971 4 453 7400 | +971 55 899 6091

[email protected]

Saadallah Al Abed

Senior Manager | Development Solutions

+971 4 453 7400 | +971 55 899 6106

[email protected]

Mariam Mahmooth

Associate Manager | Development Solutions

+971 4 453 7400 | +971 55 899 6108

[email protected]

Colliers International | MENA Region

Dubai | United Arab Emirates

+971 4 453 7400

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