Low down on affordable housing in Abu Dhabi

Mubadala Development has inked a deal with Pramerica Real Estate Investors to create a joint a venture that will invest in middle-income housing in Abu Dhabi, as well as to make wider investments around the world. The move is significant because it provides a welcome addition of financing for the ailing property sector, where developers are struggling to find financing and potential home buyers are reticent to sign on the dotted line.

After the jump, check out an appraisal of the middle-income housing market from David Dudley, the head of the Abu Dhabi office of the property consultancy Jones Lang Lasalle ...
Abu Dhabi Emirate continues to face a dramatic undersupply of housing for the lower and middle income segments of the market.
This is expected to remain the foreseeable future due to a number of factors:
Insufficient current housing stock:
Abu Dhabi
's substantial economic boom from 2006 to 2008 was not matched with sufficient delivery of housing supply. Whilst substantial supply was launched to the market through the opening of investment areas and the formation of master developers and developments, this led to highly speculative activity - with most developers targeting off-plan sales of higher end projects to investors rather than focusing on end-user requirements and most projects being put on hold as a result of the major market correction at the end of 2008.
Substantial pent-up demand for affordable and middle-market housing:
Currently a large number of households are forced to share housing units resulting in overcrowding while many Abu Dhabi employees choose to commute to work from Dubai. Whilst the rent cap has helped rental affordability, this generally protects older residents rather than newer residents, forcing multiple households to share units. These factors have led to substantial latent demand, coupled with new demand generated by continual economic development, infrastructure investment and population growth.
Mismatch between supply and demand:
As a result of developer activity during the boom years and subsequent slowdown in overall terms there will remain a significant undersupply of housing over the next five years. While the upper segments of the market will become oversupplied there will be a continual undersupply of units in the affordable and middle market segments.
Time lag for delivery of new supply:
Since the 2008 market correction many announced projects have been put on hold, developers are experiencing cash flow issues, debt finance is severely restricted and developers and investors remain very cautious in the current economic climate. Whilst investment capital is available, this is almost exclusively targeting secure, stabilized investments rather than speculative developments. As a result there will be insufficient new projects commenced over the next one to two years and a two year timelag thereafter for development completion.
Given this projected shortage of affordable to middle market housing it is crucial that public and private sector entities work together to accelerate delivery of affordable and middle market housing over the short to medium. An effective way to address the current housing shortage would be through establishing a series of public-private partnerships / joint ventures based on:
Government assisting through committing to long term leases for government housing and state-owned enterprises and by underwriting master leases for non-governmental housing;
Investors to inject capital into residential development, particularly where there are secured government income streams (corporate leases or government underwriting) against which to finance projects;
Developers (Master developers and sub-developers) to bring forward residential projects in need of cashflow injections, to re-specify and re-position these to today's market and commit to developing out the projects within a short time horizon in partnership with government and new capital providers.
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