Rental growth in Abu Dhabi during the first nine months of 2014 was a third of that seen in the same period last year, Cluttons said in a new report.
Rents across freehold areas in the UAE capital rose by just 2.7 percent between January and September compared to nine percent in the nine-month period in 2013, the real estate consultancy said.
Steve Morgan, chief executive of Cluttons Middle East, said that with average household incomes failing to keep up with the growth in rents, the cost of living is likely to be impacted and is already being factored into rental values.
"Landlords have been sensitive to the threat of affordability emerging as a core issue for tenants, with many containing rent increases in order to avert an increase in vacancy levels. This behaviour is occurring despite the removal of the government enforced Rent Cap earlier this year," said Morgan.
Cluttons' report said that the rate of rent increases did recover to an extent during Q3 (1 percent), after rising by a marginal 0.5 percent in the second quarter.
It added that this was however not reflective of tenant demand, which remains stable but strong. Overall, apartments continued to record a higher rate of rental value growth when compared to villas during the third quarter.
Cluttons said the demand for new apartment schemes has continued to increase across the capital during Q3. Abu Dhabi's Aldar properties, recently leased over 200 residential units in the city's tallest tower - Burj Mohammed Bin Rashid, within a week of its launch.
Mid-range apartments on Al Reem Island were the strongest performing in Q3, with rents rising by almost 6 percent. Despite this, rental value growth on Al Reem Island is almost unchanged on this time last year.
The report showed that in the sales market, like Dubai, the pace of residential value appreciation has slowed in Abu Dhabi, with house prices rising by just 1.6 percent during the third quarter, taking total growth during the first nine months of 2014 to almost 19 percent, compared to a 39 percent rise a year earlier.
Cluttons' international research and business development manager, Faisal Durrani, said: "In a similar pattern to the lettings market, apartment values grew at a faster rate than villas during Q3, rising by just over 4 percent, against a marginal drop for villas. Clearly the top end of the villa market, in excess of AED5 million, is feeling the strain of the federal mortgage cap."
The report also said Abu Dhabi's drive for economic diversification continues to directly impact tenant demand, and is helping to deliver long term sustainability to the emirate's residential property market.
It pointed to the emirate's strong economy, which is showing significant signs of change with rapid expansion in the education, healthcare and aviation sectors, as a key driver for residential demand.
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