Slow economic conditions have resulted in short term price and rental declines in the capital’s residential real estate market. However, according to research from leading international real estate services firm, Chestertons latest Observer: Abu Dhabi Market Report Q2 2019, medium to long term, the new freehold law coupled with the introduction of a 10-year residency visa, are expected to strengthen many areas of the economy, particularly the real estate sector.
Short term, price and rental costs have experienced downward corrections across the board, a continuation of the trend experienced in Q1 with average sales prices for apartments and villas declining 5% and 3% respectively in Q2. In the rental market, average rental rates were down 6% for apartments and 3% for villas.
Nick Witty, Managing Director, Chestertons MENA, said: “Downward price corrections in this quarter are expected to continue throughout the rest of this year as over 11,000 units are scheduled to be delivered, which is creating a highly competitive market in favour of both tenants and home-buyers, to the detriment of property prices and rents.
“There is, however, reason to be optimistic. The recently announced freehold law is expected to generate a marked improvement in the capital’s real estate sector, the UAE ministry has also recently cut work permit fees by between 50% and 94%, while the 10-year residency visa should enable people to put down roots in the country and encourage them to invest in property for the long term.”
In the sales market, the trend in Abu Dhabi in the first half of the year has seen a shift towards affordability and competitive pricing. This was reflected in the apartment sector by an 8% Q-on-Q price decrease in Saadiyat Island, denoting the largest decrease in all communities, with apartments now available for AED1,400 per sqft. This was followed closely by Al Raha Beach and Al Ghadeer, which both saw negative adjustments of 6% Q-on-Q to AED1,300 per sqft and AED750 per sqft respectively. Al Reef was the most resilient, witnessing a 1% decline to 814 per sqft in Q2.
The villa sales market witnessed further declines in Q2, with Al Raha Beach and Al Ghadeer experiencing price corrections of 5% to AED1,160 per sqft and AED700 per sqft respectively. Al Reef witnessed a further 3% drop in Q2 with average sales prices now AED628 per sqft, a result of all communities becoming more in line with market affordability and demand. Khalifa City was the only villa location to maintain the same price as Q1, at AED872 per sqft.
“In the short term we expect prices to drop further, however, with the introduction of new laws, it is likely expatriates will have the confidence to stay in the market for a longer period of time. Flexible payment plans have also become the norm while developers appear to be at the early stages of implementing co-working and co-living concepts into developments, a trend that has been successfully implemented in Dubai and many other countries around the world. These will all provide some much-needed stability to the real estate market in the capital,” added Witty.
Rental rates in Q2 continued to be hampered by new supply entering the market, reduced demand, ongoing redundancies – potentially a further 2,000 redundancies as part of the ADCB merger, and companies providing lower rental allowances. As a result, apartment rental rates were down on average by 6% and villas by 3%.
The greatest rental declines for apartments were in Al Muroor which has now seen a 16% decline since the turn of the year to AED65,000 per annum for a typical two-bedroom apartment, and Mohammed Bin Zayed City where rates fell 10% Q-on-Q to AED50,000 for the same size accommodation. The Corniche Road and Al Reem Island also witnessed declines; however, these were more subdued at 5%, with a three-bedroom apartment renting for AED155,000 and AED130,000 per annum respectively.
Average apartment rates in Al Reef, fell by just 2% with a typical two-bedroom apartment available for AED71,000, making it the most resilient apartment location.
Underscoring the demand trend for more affordable rental options in the villa market, Al Reem Island four and five-bedroom villas recorded the biggest rental decline Q-on-Q of 8% and 7% respectively. A five-bedroom is now available for AED275,000 per annum.
Al Raha Gardens saw a 5% average drop with a four-bedroom now available for AED165,000, while Al Khalidya and Al Reef were the most resilient with a nominal 1% decline to AED179,000 and AED132,000 per annum respectively for a four-bedroom apartment.