Abu Dhabi’s booming real estate market is suffering, but not because of its lack of business.

Ironically, the emirate’s profitable business of luxury developments has led to sky-high rents that are preventing the expatriate workers who build them from living in the emirate. The emirate’s property development business relies heavily on low- to middle-income expatriate workers, and the availability of skilled labour is vital to attracting international businesses to Abu Dhabi.

The Urban Planning Council (UPC), a government agency that monitors Abu Dhabi’s long-term development, has announced a plan to dramatically increase affordable housing in the capital, according to local media reports.

The UPC will allocate land, most likely in the planned Capital district between Musaffah and Khalifa City, to developers to build new housing for low- and mid-income families, according to a September 6, 2008 article in ArabianBusiness.com.

Stretching over 5,000 hectares, the district is expected to house between 300,000 and 350,000 people and will include federal government institutions, embassies, a university and sport facilities, according to an August 27, 2008 article in the Abu Dhabi-based newspaper, The National.

The master plan for the community is expected to be complete in November 2008, with a project launch set for January 2009, The National reports.

“We are working with developers willing to build affordable housing, and we will help them,” Falah Mohamed Al-Ahbabi, the UPC’s general manager, told The National.

A report by property consultant Colliers International, which was cited in The National, found that most of the 140,000 housing units currently under construction are luxury developments. On the other hand, a 2007 study by low-cost real estate developer Al-Rayan found that 350,000 people in Abu Dhabi are on low- or middle-range incomes.

A recent report by the property services company Asteco revealed that rents in Abu Dhabi increased by 49 percent in 2007, as cited in The National.

It has been widely reported in recent months that limited housing options and a high cost of living have forced many skilled foreign workers to reconsider living and working in Abu Dhabi, and recruiting agencies are having trouble finding candidates for mid-level jobs.

“In my mind there is nothing available to rent today for the middle class in Abu Dhabi,” Susan Cronin, general manager of property agent Aljar Properties told The National.

Abu Dhabi’s property market is suffering from above-inflation increases in the costs of land, raw materials and building commodities. Land is widely reported to have more than doubled in just over a year, from AED 250 ($68 [USD]) to AED 600 ($163) per square foot, while the U.A.E.’s Department of Planning and Economy figures report that steel prices soared by 91 percent in the first half of 2008, with cement increasing by over 50 percent.

Faced with this situation, developers have understandably focused on luxury developments with high returns to expand their profit margins.

“Developers can no longer build houses for mid-income families in Abu Dhabi,” Sulaiman Al-Fahim, the chief executive of Dubai-based developer Hydra Properties told The National. “Only government-supported companies … can afford it, not private ones.”

Al-Ahbabi admitted that the high price of land makes it very difficult for developers to build low-cost housing, and that free land is a key factor in building affordable housing.

“We will help developers get access to free land,” he is quoted as saying in The National.

Meanwhile, the UPC is set to release new regulations obligating developers to include affordable units in their projects for middle-income families in Abu Dhabi by the end of 2008.

“The announcement is highly welcome,” one reader, Hani Mahshi from Abu Dhabi, wrote on the ArabianBusiness.com online forum. “It is healthy for the economy in general.”

Property developers have also been enthusiastic, vowing full cooperation with the new plan.

“As a responsible company we recognise that we need to cater for everybody’s aspirations and pocket,” Aldar chief executive Ronald Barrott told The National.

“We want to integrate this with our other housing. It’s one society. We don’t want to segregate.”