Core Savills report says residential prices in UAE capital are readjusting to more sustainable levels
The rate of decline in Abu Dhabi residential property prices has increased in the first half of 2017 compared to the year-earlier period, according to Core Savills.
Its latest report said that Abu Dhabi’s real estate market is witnessing a period of change having an overall beneficial effect on the market fundamentals, with prices readjusting to more sustainable levels.
The UAE capital’s residential and office prices softened, recording faster depreciations in the first half of 2017 than in 2016, with a mirroring effect on rent and a stabilisation expected to start in 2018, the report added.
Core Savills said contractions in household incomes and workforce redundancies in both the public and private sectors have weakened real estate demand in Abu Dhabi during the first six months of this year.
"This has had an amplified effect on residential sales, as the market has witnessed widespread drops in the range of 4-16 percent within the last two quarters," it said.
The research also revealed that the prime market has 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.
"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, added: “This resistance for further drops may result in developers withholding stock in a healthy adjustment mechanism already witnessed in Dubai in the past five years. This would in turn, cause a prolonged period of lower volumes and flattened sales prices.”
The report also highlighted that the office market vacancy rate in Abu Dhabi continues to increase on the back of a weaker demand, particularly for office stock located in secondary areas.
The introduction of VAT is expected to add interim compression on corporate and retail businesses, as they may face higher operational overheads due to administrative and compliance costs combined with lower consumer confidence, adding further downward pressure on rents.