Residential sales softened in 2017, especially in the prime market, says Core Savills report
The price of property in Abu Dhabi has fallen by between 4 and 16% depending on area in the first two quarters of this year, according to a report by Core Savills.
Sales prices per square foot fell by 4% in Al Raha Gardens, 9% at Al Reef Villas, and 16% at Saadiyat Beach Residences, the report found.
“We have witnessed widespread dips in the range of 4 to 16% within the last two quarters, depreciating faster than our yearly forecast, estimated at 15% until the end of 2017,” the Core Savills report said.
“Contractions in household incomes and workforce redundancies in both the public and private sectors have weakened real estate demand in Abu Dhabi. This has had an amplified effect on residential sales,” it said.
“The prime market has unsurprisingly witnessed steeper softening, as occupiers favour affordability and investors face increasing challenges to lease high-end products. New supply, coupled with the rise in secondary stock coming to the market, are expected to exert further downward pressure on sales prices in the short term, although the mid-term prospective is not as dark as many say.”
Andrew Ausama, Associate Director at Core Savills, said: “Despite these market conditions, we expect the pace of price drops to slow down over the next 6-12 months as the market reaches a critical point with sales price bottoming at AED 1150-1250 and leasing prices at AED 70-75 psf. Developers/landlords may resist further drops in pricing as these reductions undervalue their portfolio as lower rental yields affect or may breach bank covenants which may require vendors to increase capital security or reduce debt in keeping with banking requirements.”
David Godchaux, CEO of Core Savills adds that “This resistance for further drops may result in developers withholding stock in a healthy adjustment mechanism already witnessed in Dubai in the past 5 years. This would in turn, cause a prolonged period of lower volumes and flattened sales prices.”
According to the report, “The rental market mirrors the sentiment of the sales market as housing allowances remain under pressure. Whilst mid-segment apartments located within close proximity to offices have been relatively resilient, villas have witnessed rental decrease in the range of 14-17%; with an exception of Saadiyat Villas which displayed a lower rental decline under 9%. In the wake of these challenging market conditions, landlords in the city area are finally starting to adjust to these market conditions, while others are continuing to lose tenants as a consequence.”