DUBAI, (Reuters) – Abu Dhabi property developers are shifting their strategies to focus more on government-backed residential housing projects in order to maintain market share, their building capabilities and cashflow.
Government funding for Abu Dhabi housing projects is vital for cash-strapped developers until the recession-hit property market rebounds, and they can capitalise on an expected supply shortfall in the number of homes being built.
In April Sorouh Real Estate, the emirate’s second largest developer, signed a contract to develop two communities for Emirati families, in a deal financed by the emirate’s Urban Planning Council. More government-related projects are expected.
“It’s definitely a realignment of our business strategy,” said Fahad Al Ketbi, Sorouh’s chief commercial officer.
“We did it because of the need to look at the liquidity situation in the market and I believe the days of off-plan sales are gone so this is a natural shift. Also, there continues to be an undersupply of housing for UAE nationals in Abu Dhabi.”
Sorouh wants to up the weighting of its government-related projects to more than 50 percent, from 25 percent, he said.
While Abu Dhabi’s property market has fared better during the global financial crisis than Dubai’s, executives at Sorouh and Aldar Properties expect a challenging year ahead in 2010, citing tight liquidity.
House prices in the capital are seen down 10 percent in 2010 and flat in 2011 and 2012, a Reuters poll in April showed.
Aldar Properties, the emirate’s largest developer by market cap, and Abu Dhabi’s Al Qudra Real Estate have struck similar national housing deals as the government addresses the affordable housing shortage for nationals.
These projects were “a good thing as it allows the developer to maintain its market share and capabilities,” said Ian Albert, regional director at Colliers International.
Colliers estimates a possible undersupply of 42,000 homes by in Abu Dhabi by 2013.
“Initially developers were chasing the volumes and volumes were at the high end of the market but now the shift is to demand projects,” said Saud Masud, real estate and construction analyst at UBS.
“They are not massive opportunities and they don’t offset the decline in private spending but they provide support for the stock,” Masud said.
“It’s a way for the government to provide some support for developers. It’s a sort of lifeline,” he added.