No Respite For Abu Dhabi’s Residential Market in Q2 says Chestertons

Apartment and villa sales decline 3% and 4% respectively; apartment rental rates soften by 3%, villas by 1% according to the Q2 2018 report Delivery of an additional 6,000 units to place further pressure on prices throughout 2018 Government investment potentially to temper further declines over the next three years

The current decline in sales prices and rental rates in Abu Dhabi’s residential market is predicted to continue with the addition of circa 6,000 units during the remainder of 2018 according to the latest research from leading international property company Chestertons’ Observer: Abu Dhabi Q2 2018 report.

Approximately 1,600 units were delivered to the market in Q1, predominantly on Yas Island, Al Raha Beach and Reem Island and a further 6,000 units are expected to be delivered over the rest of the year, negatively impacting sales prices as investors wait for the best possible deal and tenants negotiate new contracts as landlords attempt to keep properties occupied.

Overall sales prices of apartments and villas softened in Q2 by 3% and 4% respectively quarter-on-quarter, while apartment and villa rents continued to fall, 3% and 1% respectively.

“The Abu Dhabi residential market is continuing to face tough market conditions due to increased supply. The sales market is faltering as potential investors wait it out for the right property, at the right price. We’re seeing an increased trend of investors being more cautious and waiting for stability to return to the market,” said Ivana Gazivoda Vucinic, Head of Consulting and Valuations and Advisory Operations, Chestertons MENA.

The apartment sales market softened across the board. Saadiyat Island witnessed the steepest decline with a 6% drop, with prices falling from AED1,497 per sqft in Q1 to AED1,412 per sqft in Q2. Al Ghadeer and Reem Island fell by 4% and 3% respectively with prices in Al Ghadeer averaging AED923 per sqft and on Reem Island at AED1,114 per sqft in Q2. Al Raha Beach and Al Reef witnessed the strongest return with just a 1% decline now selling at AED1,504 per sqft and AED910 per sqft respectively.

The villa sales market witnessed a more marked decrease with Al Ghadeer dropping 7% quarter-on-quarter to AED809 per sqft and Al Raha Beach Area prices falling 6% to AED1,081 per sqft. Al Reef and Al Raha Gardens fared slightly better with decreases of 2% and 4% at AED692 per sqft and AED768 per sqft respectively. Khalifa City was the only area where prices remained unchanged at AED895 per sqft.

Landlords looking for some respite will be disappointed, with all areas returning another quarter of decreasing rates. In the apartment market the Al Raha Beach area witnessed a 7% decrease with a one-bedroom’s now available for AED97,000 pa. This was followed by Khalifa City where a decline of 6% was witnessed with a one-bedroom available for AED48,000 pa. The most resilient location for apartment rents was Saadiyat Island, overall there was a 1% decrease, however, in the one-bedroom category, rents remained unchanged.

Villas in Al Reef and Khalifa City, both witnessed a 3% decline with three bedroom units now available for AED119,000 and AED149,000 respectively. In Mohammed Bin Zayed City, Al Ghadeer and Reem Island prices remained flat, with three-bedroom villas leasing for AED125,000pa, AED120,000pa and AED220,000pa respectively.

“Landlords are having to pull out all the stops to ensure continued occupancy of their properties. Incentives include reduced prices, multiple cheques and even waving agency fees. Adding to the pressure on landlords has undoubtedly been the recently implemented ‘Property Tax’ by Abu Dhabi Municipality, with rates for apartments now at 5%, while villas are subject to 7.5% tax,” added Vucinic.

Despite the continued weakening of sales and rents, there are plans by Abu Dhabi government to accelerate the economy over the next three years with an AED50 billion stimulus package. A new body, called Ghadan, Arabic for tomorrow, will be created to develop new technologies and investments to speed up economic diversification locally and regionally. ADNOC will also invest over AED400 billion in its gas downstream growth strategy.

“It is hoped these initiatives could filter down to the Abu Dhabi real estate market through the creation of new jobs which is likely to create fresh demand for residential property,” added Vucinic.

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