Incentives on rise for property buyers in Abu Dhabi

The Abu Dhabi developer Sorouh last year launched a rent to own offer for Sun Tower, left, as an incentive to potential residents. Silvia Razgova / The National

Discounted mortgages and offers such as "rent to own" are expected to become a growing feature of Abu Dhabi's property landscape as developers compete to fill new homes coming into the market.

Such offers have been scarce in the capital as there were fewer foreign ownership opportunities and a chronic shortage of property to rent. But that is rapidly changing said one developer in Abu Dhabi.

"Everything will be driven by pricing structures, who creates the best incentives to capture whatever demand there is in the market," said Gurjit Singh, the chief operating officer of Sorouh Real Estate. "2012 will be pricing structures, deliveries and who gets their foot in the door first to capture the market.

"You see clear drivers to seek better value for money and developers have now started to respond to that. This year is a year of a lot of rationalisation."

Last year the developer launched a rent to own offer for Sun Tower as an incentive to potential residents and Sorouh is calling on banks to offer better deals to homebuyers.

"What we would also like to do, and we are already in the throes of doing this, is working with the financial institutions to see how they can throw in some incentives of their own, either in terms of lower interest rates or a particular period in the first few years of the loan tender, which will incentivise people to take on mortgages," said Mr Singh. "There needs to be some kind of tipping point where people come back into the market because they see value for money."

The comments came as the company yesterday reported a surge in its net profit for last year.

Sorouh's 2011 net profits surged to Dh383.3 million (US$104.3m), after provision and impairments, from Dh16.1m the previous year.

Revenue for the full year was Dh3.8bn, compared with Dh1.2bn last year, Sorouh reported. This was driven by the handover of its Sun and Sky towers, which generated Dh2.2bn.

Recurring revenue, a land sale and national housing projects also helped to boost profit.

"Clearly it's very important for us to continue to lease this inventory that we have as we bring it to market - that builds the recurring income for the future," said Richard Amos, the chief financial officer of Sorouh.

The company is expecting to hand over its Tala tower this year and has a mall in Al Ain scheduled for completion by the end of this quarter.

Up to 28,000 residential units are scheduled for completion this year in Abu Dhabi, although many of these projects are likely to experience further delays at the final stage of approval, according to research by the property firm Jones Lang LaSalle. "The supply coming into the market today is the result of a lot of developments commencing at about the same time, three or four years ago, and all of it coming into stock this year," said Mr Singh. "You may see less stock coming into the market next year and then we are looking at absorption."

As a result, rents and values are expected to decline further this year, he said.

"But this will be a short-term phenomenon before we see stabilisation next year," he said. This would be partly driven by government projects that are advancing, he added.

Analysts have echoed this sentiment. "The softening of rents is decreasing the rent premium that Abu Dhabi has maintained over Dubai in recent years, which may help draw commuters back to the capital, increasing demand for real estate across all sectors," said Jones Lang LaSalle. "The completion of new high-end apartment buildings will improve options for higher-income residents and increase vacancies in lower-grade assets as tenants upgrade."

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