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Abu Dhabi / Dubai: The Two Horsemen
UNITASCONSULTANCY
A GLOBAL CAPITAL PARTNERS GROUP COMPANY
Q1 2017
Executive Summary
A yield analysis of freehold areas in both cities reveals that in the villa space Abu Dhabi returns a higher yield, whereas in the apartment segment
Dubai has superior returns. Dubai has various mid-income communities (ala International City and Discovery Gardens) that skew the city-wide
apartment yields higher. We opine as Abu Dhabi moves towards the roll out of more affordable products, the yields in apartment between both
cities will equalize. However, in the villa space the trend is inversed. Abu Dhabi has higher yields relative to Dubai as prices are lower and rental
rates are similar. Given the recent wave of affordable launches in the horizontal space in Dubai, we expect yields to inch higher, mirroring those of
Abu Dhabi.
It is becoming clear that the state of the freehold markets of the two cities are likely to be symbiotic, reflecting the intertwined economic
performance of closer integration. Investors are likely to focus on relative locational advantages during the course of an economic cycle; however it
is likely that price cycles are likely to converge in the years ahead.
In 2016, Abu Dhabi expected to deliver 5,000 units in the freehold space, but delivered 3,725 units. Whereas Dubai expected to handover 27,000
units but delivered only 48%. This discrepancy between anticipated completions and actual handovers highlights the over-exaggerated fears of an
over supply. The number of units launched in Dubai in the last two years dwarf those of Abu Dhabi in the freehold space. However, this dynamic is
expected to change as Abu Dhabi ramps up supply in the mid income segment.
An examination of the Abu Dhabi and Dubai real estate market reveals that since 2012, Dubai apartments have experience superior growth rates
(2x) to those of Abu Dhabi. Interestingly in the villa segment, capital gains in both cities have mirrored each other indicating that in the horizontal
space there is equal value being perceived by investors. In the rental space both cities have followed the same trajectory as prices (June 2012 – Feb
2017). Dubai apartment rental rates have appreciated more than 35% since that time, while apartment rates in Abu Dhabi slip back to 2012 levels.
In the villa space, rental rates of both cities have moved more or less in tandem over the past 5 years.
A comparison between the equity markets of both cities reveals that the ADX general index has outperformed the DFM from June 2006. The ADX
has returned 35%, whereas the still DFM remains in the red. This relative stability that has been witnessed in Abu Dhabi has been against the
backdrop of lower volumes as well as a more stable era of economic growth as well. In the last 5 years, performance between the two indices have
converged indicating a closer knit integration between the two cities in terms of economic performance.
Content
01
03
02
04
Abu Dhabi & Dubai: Yield
Dynamics
Abu Dhabi & Dubai: Real
Estate and Equities
A look into the Supply Side Conclusions
Abu Dhabi & Dubai: Real Estate and Equities
“An easy life does not make men, nor does it build nations. Challenges make men, and it is these men who build nations.”
H.H. Sheikh Mohammed bin Rashid Al Maktoum
Abu Dhabi and Dubai: Prices Indices by Segment
Dubai and Abu Dhabi: Apartment and Villas Price Index
The above chart examines the returns of the different segments (apartments and villas) within the real estate asset class of Abu Dhabi
and Dubai. Since 2012, Dubai apartments have experienced more than double the capital gains compared to Abu Dhabi apartments.
Interestingly, however, within the villa category, capital gain in both cities remain at par, indicating that in the horizontal space of the
market, there is equal value being perceived by investors.
Source: Reidin
90
100
110
120
130
140
150
160
170
Abu Dhabi (Apartments) Abu Dhabi (Villas) Dubai (Apartments) Dubai (Villas)19%
21%
44%
22%
0% 20% 40% 60%
Abu Dhabi (Apartments)
Abu Dhabi (Villas)
Dubai (Apartments)
Dubai (Villas)
Price Gains by Segment (Jun 12 – Dec 16)
Abu Dhabi and Dubai: Rent Indices by Segment
Dubai and Abu Dhabi: Apartment and Villas Rent Index
Rental rates in both cities have followed the same trajectory as prices since June 2012. Dubai apartment rental rates have appreciated
more than 35% since that time, while apartment rates in Abu Dhabi have slipped back to 2012 levels. Again, in the villa space, rental
rates of both cities have moved more or less in tandem over the past 5 years.
Source: Reidin
Rent Gains by Segment (Jun 12 – Dec 16)
90
100
110
120
130
140
150
160
20
12
-06
-01
20
12
-08
-01
20
12
-10
-01
20
12
-12
-01
20
13
-02
-01
20
13
-04
-01
20
13
-06
-01
20
13
-08
-01
20
13
-10
-01
20
13
-12
-01
20
14
-02
-01
20
14
-04
-01
20
14
-06
-01
20
14
-08
-01
20
14
-10
-01
20
14
-12
-01
20
15
-02
-01
20
15
-04
-01
20
15
-06
-01
20
15
-08
-01
20
15
-10
-01
20
15
-12
-01
20
16
-02
-01
20
16
-04
-01
20
16
-06
-01
20
16
-08
-01
20
16
-10
-01
20
16
-12
-01
Abu Dhabi (Apartments) Abu Dhabi (Villas) Dubai (Apartments) Dubai (Villas)
8%
36%
11%
-5% 0% 5% 10% 15% 20% 25% 30% 35% 40%
Abu Dhabi (Apartments)
Abu Dhabi (Villas)
Dubai (Apartments)
Dubai (Villas)
ADX and DFM Performance
ADX and DFM (2006 – Mar 2017)
A look into the index performance of the ADX and DFM reveals that from 2006, the former has had superior gains that the latter. The
DFM has been relatively more volatile than the ADX on the upside as well as the downside over the last 11 years. This relative stability
that has been witnessed in Abu Dhabi has been against the backdrop of lower volumes as well as a more stable era of economic growth
as well. In the last 5 years, performance between the two indices have converged indicating a closer knit integration between the two
cities in terms of economic performance.
Source: Reidin
Rent Gains by Segment (Jun 12 – Dec 16)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Jan
-06
May
-…
Sep
-06
Jan
-07
May
-…
Sep
-07
Jan
-08
May
-…
Sep
-08
Jan
-09
May
-…
Sep
-09
Jan
-10
May
-…
Sep
-10
Jan
-11
May
-…
Sep
-11
Jan
-12
May
-…
Sep
-12
Jan
-13
May
-…
Sep
-13
Jan
-14
May
-…
Sep
-14
Jan
-15
May
-…
Sep
-15
Jan
-16
May
-…
Sep
-16
Jan
-17
DFM ADX
-100% -50% 0% 50% 100%
2006 to Date
2007 to Date
2008 to Date
2009 to Date
2010 to Date
2011 to Date
2012 to Date
2013 to Date
2014 to Date
2015 to Date
ADX DFM
Yield Dynamics
“Maybe stories are just data with a soul. And maybe I am just a storyteller”
Brené Brown
Abu Dhabi and Dubai: Yield Dynamics by Segment
Dubai and Abu Dhabi: Villa Gross Yields
A closer look into the prevalent gross yields of freehold areas in both cities reveals that in the villa space Abu Dhabi has higher yields,
whereas in the apartment space Dubai records the higher figure. In the apartment space Dubai yields are skewed towards the higher end
of the spectrum, given its greater preponderance of supply at the mid end of the market (i.e. International City, discovery Gardens,
Jumeirah Village). However, we expect this gap to lessen as Aldar makes its move into mid-income projects.
In the villa segment, Abu Dhabi has higher yields due to the lower the prices on a per square foot rate and similar rental rates to those of
Dubai. We expect Dubai villa yields to increase as well with the new wave of launches in affordable villas and townhouse in areas such as
Nshama and Akoya Oxygen.
Source: Reidin
7.4%
6.8%
9.5%
6.8%7.3%
5.8%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
DubaiApartments
Dubai Marina InternationalCity
Abu DhabiAparments
Al Reem island Al Raha Beach
5.4%5.9% 5.8%
7.0%
6.3%
7.5%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Dubai Villas Springs andMeadows
ArabianRanches
Abu DhabiVillas
Al RahaGardens
Al Reef
Dubai and Abu Dhabi: Apartment Gross Yields
Abu Dhabi and Dubai: Historical Yield Dynamics
Abu Dhabi and Dubai: Villa Gross Yields (Jan 2009 – Jan 2017)
The above graph reveals the historical yield rates for Abu Dhabi and Dubai bifurcated by villas and apartments. Within the villa space we
witness that Abu Dhabi has consistently yielded higher rental returns than Dubai, although there has been a trend towards convergence.
In the apartment space, yields have crisscrossed, although Dubai appears to have the higher yields given the greater choice that it offers
in the mid market segment. We expect to see a convergence in both segments between the cities going foreword as both cities adjust
supply towards the affordable segment; Dubai towards the villa space and Abu Dhabi towards apartments.
Source: Reidin6%
7%
7%
8%
8%
9%
9%
10%
20
09
-01
-01
20
09
-05
-01
20
09
-09
-01
20
10
-01
-01
20
10
-05
-01
20
10
-09
-01
20
11
-01
-01
20
11
-05
-01
20
11
-09
-01
20
12
-01
-01
20
12
-05
-01
20
12
-09
-01
20
13
-01
-01
20
13
-05
-01
20
13
-09
-01
20
14
-01
-01
20
14
-05
-01
20
14
-09
-01
20
15
-01
-01
20
15
-05
-01
20
15
-09
-01
20
16
-01
-01
20
16
-05
-01
20
16
-09
-01
20
17
-01
-01
Abu Dhabi (Apartments) Dubai (Apartments)
5%
6%
7%
8%
9%
10%
11%
20
09
-01
-01
20
09
-05
-01
20
09
-09
-01
20
10
-01
-01
20
10
-05
-01
20
10
-09
-01
20
11
-01
-01
20
11
-05
-01
20
11
-09
-01
20
12
-01
-01
20
12
-05
-01
20
12
-09
-01
20
13
-01
-01
20
13
-05
-01
20
13
-09
-01
20
14
-01
-01
20
14
-05
-01
20
14
-09
-01
20
15
-01
-01
20
15
-05
-01
20
15
-09
-01
20
16
-01
-01
20
16
-05
-01
20
16
-09
-01
20
17
-01
-01
Abu Dhabi (Villas) Dubai (Villas)
Abu Dhabi and Dubai: Apartment Gross Yields (Jan 2009 – Jan 2017)
A look into the Supply Side
“The price of light is less than the cost of darkness”
Arthur C. Nielsen
Abu Dhabi and Dubai: Supply Dynamics
The above graph reveals the expected and realized supply of Abu Dhabi and Dubai. In 2016, Abu Dhabi expected to deliver 5,000 units in
the freehold space, but delivered 3,725 units. Whereas Dubai expected to handover 27,000 units but delivered only 48%. The realization
rates of supply in both cities have been systematically lower, indicating not only the flaw in analyst estimates, but also a greater
sensitivity on the part of developers to adjust to market conditions.
Source: Reidin
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2014 2015 2016
Abu Dhabi
Expected Realized Completetion Rate
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0
5,000
10,000
15,000
20,000
25,000
30,000
2014 2015 2016
Dubai
Expected Realized Completetion Rate
Abu Dhabi: Expected Vs Realized Supply Dubai: Expected Vs Realized Supply
Nu
mb
er o
f U
nit
s
Nu
mb
er o
f U
nit
sCo
mp
letion
Rate
Co
mp
letion
Rate
Abu Dhabi and Dubai: Launches in Freehold areas 2015 & 2016
The number of units launched in Dubai in the last two years dwarf those of Abu Dhabi in the freehold space. However, this dynamic is
expected to change in the next 2-3 years, as Abu Dhabi begins to ramp up supply especially in the mid income space. This is expected to
increase secondary market activity as well as investors have an increased number of options to choose from.
In Dubai, the continuing increase of supply in the freehold space indicates the aggressive pace of urbanization throughout the city as
new master planned communities continue to proliferate in the run up to World Expo 2020 event.
Source: Reidin
-
5,000
10,000
15,000
20,000
25,000
30,000
2015 2016
Abu Dhabi Dubai
Abu Dhabi and Dubai: Units Launched 2015-2016
Nu
mb
er o
f U
nit
s
Conclusions
Abu Dhabi & Dubai: Real Estate and Equities Abu Dhabi & Dubai: Yield Dynamics
In the rental space both cities
have followed the same
trajectory as prices (June
2012 – Feb 2017). Dubai
apartment rental rates have
appreciated more than 35%
since that time, while
apartment rates in Abu Dhabi
slip back to 2012 levels
A look into the Supply Side Conclusion
Since 2012, Dubai apartments
have experienced more than
double the capital gains
compared to Abu Dhabi
apartments. However, within
the villa category, capital gain
in both cities remain at par
A comparison between Abu Dhabi and Dubai real estate prices
over a 11 year period reveals that the latter experienced twice
the growth in the apartment segment. While in the villa
segment both cities capital gains mirrored each other indicating
that in the horizontal space there is equal value being perceived
by investors.
A look into the index performance of the ADX and DFM reveals
that from 2006 the ADX returned 35%, whereas the still DFM
remains in the red. In the last 5 years, performance between
the two indices have converged indicating a closer knit
integration between the two cities in terms of economic
performance.
In 2016, Abu Dhabi had completion rate of 75% whereas Dubai
had 48%. The realization rates of supply in both cities have
been systematically lower, indicating not only the flaw in
analyst estimates, but also a greater sensitivity on the part of
developers to adjust to market conditions.
The number of units launched in Dubai in the last two years
dwarf those of Abu Dhabi in the freehold space. However, this
dynamic is expected to change in the next 2-3 years, as Abu
Dhabi begins to ramp up supply especially in the mid income
space.
Investors have already started to perceive similar economic
value in the villa space between the two cities. As Abu Dhabi
ramps up supply in the mid income space, it is likely that the
price cycles of the two cities will start to converge, reflecting
the symbiotic economic performances of the two Emirates.
Although relative locational and regulatory advantages may be
something that investors focus on during price cycles, the
overall market dynamics indicate that prices should start
moving in tandem between the two cities in the coming years.
A yield analysis of the different residential segments in the two
cities reveals that in Dubai apartments have a higher gross yield,
whereas in the villa space Abu Dhabi has higher returns.
In the apartment space Dubai yields are skewed towards the higher
end of the spectrum, given its greater preponderance of supply at
the mid end of the market
We expect to see a convergence in both segments between the
cities going foreword as they adjust supply towards the affordable
segment; Dubai towards the villa space and Abu Dhabi towards
apartments
Abu Dhabi / Dubai: The Two Horsemen
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mechanism to identify and exploit market discrepancy
and capitalize on diversified revenue streams.
Our purpose is to manage, direct, and create wealth for
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GCP is the author for these research reports
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