Abu Dhabi property yields ‘stable at 5%’ despite flat market

Chestertons report finds yields as high as 8.8%, while rental rates and sales prices register declines


Abu Dhabi property investors are seeing stable yields averaging at 5% despite the relatively flat market performance in the first half of 2016, a new report shows.

Yields are as high as 8.8% in some areas, according to the latest residential market report for Abu Dhabi released by property agency Chestertons MENA.

“Although the market has flattened further in Q2 and witnessed declines as sales and rental rates dip further, rental yields are still rewarding investors and proving that the UAE capital is still the place to be,” said Declan McNaughton, managing director for the UAE at Chestertons MENA, in a statement.

Apartments in Al Reef Downtown, Al Ghadeer and Al Muneera saw yields of 8.8%, 7.7% and 7.5% respectively, he added

Overall, apartments saw a 2% decrease in rental rates during the second quarter of 2016 compared to an increase in Q1 2016, with average lower range annual leasing rates for studio and one-bedroom apartments commanding AED40,000 ($10,890) and AED52,000 respectively, Chestertons said.

“On average the residential rental market has dropped by 2% with the luxury end of the segment bearing downward pressure due to a reduction in spending, compounded by cuts to government spending due to lower oil prices. The remainder of the year will see marginal declines however solid yields will still prove popular with investors,” added McNaughton.

The report said an average two-bedroom apartment in Al Reef Downtown rents for AED108,000 annually, a reduction of AED2,000 compared to Q1 2016, while a similar sized property in Al Reem Island will cost AED140,000 per annum. Al Bandar remains one of the most expensive locations – a two-bedroom apartment will cost AED193,000 per annum, again a minimal decrease of just AED2,000 compared with the first quarter of the year.

The villa rental market this quarter mirrored the apartment rental market in witnessing decreases across the board. Rental rates varied from AED105,000 for an entry level lower range three-bedroom villa up to AED145,000 and AED175,000 for four and five-bedroom villa in the same pricing category, according to Chestertons’ report.

The resulting cost of leasing an average three-bedroom villa in Al Reef for a year is now AED148,000, in Khalifa City AED183,000 and in Saadiyat Island, AED335,000, it added.

Average sales prices of both apartments and villas witnessed further falls with marginal drops of 1% in Q2 2016. The average sales price per square foot for apartments in the capital stood at AED1,340 in Q2 2016, with villas selling for AED1,088 per square foot.

The apartment developments that saw increases in Q1 recorded minimal price corrections. Al Zeina dropped to AED1,495 per square foot from AE1,520 in Q1 2016; while Al Reef Downtown slipped marginally to AED925 versus AED930 per square foot recorded in the first quarter of the year, with both areas returning to prices originally witnessed in Q4 2015.

“We’ve seen a marginal decrease this quarter and once again the rate of decline variance among the communities demonstrated mixed sentiments in terms of sale price. The addition of new units delivered this past quarter and a further 3,500 expected by the end of the year will result in marginal fluctuations during this period of consolidation,” said McNaughton.

Villas in Al Reef bucked the trend of decreasing prices, remaining unchanged at AED1,010 per square foot while minimal changes were seen in Al Raha Gardens and Khalifa City, which dropped to AED 985 and AED840 respectively. Meanwhile Saadiyat Island stood at AED1,580 per square foot, Chestertons added.

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