New Asteco report says reduced public spending, business contraction contribute to subdued rental market
A combination of reduced public spending, business contraction, a reduction in staff benefits and the continued delivery of new housing units have all placed downward pressure on rental rates and sales prices across Abu Dhabi’s real estate sectors.
According to the Q1 2017 Abu Dhabi market report from real estate consultancy Asteco, existing and off-plan developments with unique selling points in desirable locations such as Saadiyat Island, have bucked the trend and recorded healthy demand.
It said rental rates within this master community have proven more resilient due to the limited supply and general appeal of the area.
Overall, Asteco research identified a 3 percent quarter-on-quarter decline in apartment rental rates in Q1, with the market recording a drop of 8 percent in rates over the past 12 months.
“In part this was a consequence of tenants negotiating favourable leasing conditions, as budgets were reined in, due to economic uncertainty and overall employment prospects,” said John Stevens, managing director, Asteco.
Villa rental rates put up a slightly better performance with declines limited to 5 percent over the last 12 months and a marginal 2 percent for the first quarter - attributed to low demand and limited availability of quality units, the report said.
It added that villas in some communities, such as Al Raha Gardens and lower end units on Abu Dhabi Island, recorded decreases of up to 12 percent.
“The low oil price continues to weigh heavily on the capital’s property market, as the government continues to cut spending, at a time when a significant amount of new supply is ready to be delivered. This quarter has underscored the existing trend that 2017 will be challenging,” said Stevens.
“We expect to see further corrections, but with a marked increase in demand for good quality and competitively priced products as the appetite for older stock fades. Indeed, we’ve already witnessed off-plan, well-priced villas with flexible payment plans, such as TDIC’s Lagoons project, generating interest from potential investors,” he added.
Apartment sales prices decreased by 2 percent compared to the previous qyarter and 4 percent since Q1 2016, the report noted, adding that villa sales prices witnessed a quarter-on-quarter decline of 2 percent, while annually the figures decreased by 5 percent.
The report said new supply is also steering performance with 2,700 new apartments delivered over the last 15 months, many leased and sold below prevailing rates to facilitate a higher take-up.
In Q1, 1,350 new apartments and 150 new villas were completed across Abu Dhabi. By the end of 2017, it is expected developers in the emirate will have delivered another 2,550 new apartments and 900 new villas, Asteco said.
Stevens said: “The anticipated delivery of new projects, in the short to medium term, is expected to increase investment opportunities, which in turn will have a positive effect on transaction volume.”