Employment Concerns / Spending Cuts – Abu Dhabi

Average sales prices witness nominal 1% drop;

Rents set to fluctuate further in Q4 while sales prices expected to remain stable;

Silver lining for investors as apartment yields reach 7%, villas stand at 5%

07 November 2016
Rental rates for both apartments and villas in Abu Dhabi have been directly impacted by the current macroeconomic challenges, witnessing declines of up to 3% in Q3, according to the latest research report from leading international property agency, Chestertons MENA.

Continued cost cutting and downsizing in the oil and government sectors has caused increasing economic uncertainty, job cuts and, in many cases, a drop in employment allowance, forcing residents to seek cheaper and smaller options.

Robin Teh, UAE Country Manager/Director Valuations & Advisory UAE, Chestertons MENA, said: ‘Due to the continuing instability in the job market, demand has weakened in the last few months with major demand arising from the middle and low income groups focusing largely on the affordable housing segments of the Emirate. 

‘Further drops in rents are expected, in line with the trend in neighboring Dubai.’

Al Bandar remains one of the most expensive areas to rent in the Emirate at AED185,000 for an average two-bedroom apartment, despite an AED8,000 reduction compared to Q2 2016. While at the opposite end of the scale, similar sized apartments in Al Ghadeer are commanding an average annual rent of AED72,000, down AED3,000 from the previous quarter. 

In terms of the villa market, there was an average drop of 3% across the villa communites covered in the Chestertons report.  Three bedroom apartments in Al Reef, Al Raha Gardens and Khalifa City declined by 3% while similar sized units in Saadiyat Island declined by a marginal 1%.  Five bedroom apartments had th highest drops reaching up to 5% in both Al Reef and Al Raha Gadens.  There was a marginal decline of 1% in the overall residential sales prices, with areas such as Al Ghadeer and Al Reef showing no signs of apartment price depreciation. The average sale price of apartments is AED1,330 per square foot; and AED1,080 per square foot for villas.

Meanwhile, Abu Dhabi still remains an attractive destination for investors, with gross rental yields reaching as high as 8.5% in the apartment sector; and 7% for villas.

Teh said: ‘The capital’s position as a safe haven for investors has been consistent in recent years, offering returns of 5.5% and above. This has remained true throughout 2016 with overall gross rental yields at a constant level to date within the report coverage areas. Al Ghadeer and Al Reef Downtown remain the most attractive locations for investors with yields between 8% and 9%. Villas in Al Reef and Al Raha Gardens provide the highest yields between 6% and 7%.’

The report also stated there were approximately 1,000 units delivered in Abu Dhabi during Q3 and a further 3,000 units are scheduled to enter the market by the end of 2016. Some of the major developments due for completion by 2020 include: The Square ‘ Saadiyat Island, New York University Villas, Mayan Yas Island and The Island Abu Dhabi.

However, Teh cautioned: ‘There is a slowdown in the completion rate of housing supply compared to 2015 due to the current market conditions forcing developers to delay completion dates.’