Prices unlikely to recover until effects of $13.7bn AD government stimulus package are felt
International property firm Chestertons says real estate sales prices and rental rates will face continuing pressure in Abu Dhabi into 2019 before the market feels the benefit of the government’s $13.7 billion stimulus package.
In the latest Observer: Abu Dhabi Market Report Q3 2018, Chestertons notes unfavourable “macroeconomic conditions, compounded by further supply entering the market” as hampering sale and rental of property in the UAE’s capital.
The report adds that, in addition to new developments entering the market, “ongoing redundancies and companies offering lower rental allowances are adding further units to the market place” and putting downward pressure on rental rates. The firm says that average rental rates were down 3% for apartments and 2% for villas on quarter-on-quarter (Q-on-Q) basis.
“Even the more resilient apartment locations such as Saadiyat were faced with declining rates, admittedly of just 1% overall, with studios and one-bedroom apartments unchanged from Q3. This has, however, allowed some tenants to take advantage of the downturn by using the opportunity to upgrade to larger units with better-quality specifications, located in more popular areas,” commented Ivana Gazivoda Vucinic, head of consulting, Chestertons MENA.
The report says that the biggest adjustments in the apartment rental market were seen in Al Reem Island and the Al Raha Beach area with both returning 4% declines Q-on-Q – “with studio apartments priced per annum at AED50,000 and AED68,000 respectively. However, when compared to Q4 2017, the highest price point in the last year, Al Raha Beach has seen a 30% decrease in rental asking prices for studios.”
In Al Ghadeer, Al Khalidiya, Mohammed Bin Zayed City and Corniche Road, Chestertons reported that apartments “fell by 3% over all with studios in Corniche Road witnessing the steepest Q-on-Q decline at 9% and now available annually for AED70,000.”
Similarly to apartments, villa rentals in Al Reem Island observed the greatest drop at 6% with a four-bedroom now available for AED235,000 per year. Locations that remained unchanged in the villa market in Q3 included Al Ghadeer, Khalidiya and Khalifa City with four-bedrooms in the latter renting for AED185,000 and AED170,000 respectively.
“The shift in market dynamics has resulted in several landlords focusing on retaining tenants rather than facing long periods without any rental income, particularly in a market where we’re seeing some tenants moving to save a few thousand dirhams a year on their rental budget,” added Vucinic.
The apartment sales market softened across the board with Al Ghadeer showing the steepest decline with a 6% drop to AED866 per sqft. Saadiyat Island, which had previously witnessed the biggest drop in Q2 at 6%, was more resilient with only a 1% decline to AED1,400 per sqft, suggesting the area is starting to reach more realistic pricing levels. In the villa sales market, as with the apartment market, Al Ghadeer saw the greatest decline Q-on-Q of 5% to 766 per sqft. Khalifa City fared better, with a decline of just 2% to AED875 per sqft whilst Al Reef remained unchanged at AED690 per sqft.
In a bid to provide some respite to the Abu Dhabi real estate market, Abu Dhabi Government has announced 50 new initiatives as part of its $13.7 billion (AED50 billion) stimulus package, reflecting the priorities of citizens, residents and investors. Over $5.44 billion (AED20 billion) has been allocated to the 2019 package.
“Abu Dhabi Government will play a pivotal role in the recovery of its real estate industry with initiatives such as the regional and global promotion of the Emirate expected to have a positive impact. However, until the effects of initiatives such as this are realised, the real estate sector is likely to suffer continued price adjustments into 2019,” said Vucinic.