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Abu Dhabi’s realty price dips could see a slowing down

Developers likely to put strict control on supply until demand improves

Gulf News

Dubai

The bargains on property prices — and even on rent terms — could be coming to an end in Abu Dhabi. Developers and landlords are in the mood to offer up much more resistance to such demands, says the latest update from Core Savills.

“Developers/landlords may resist further drops as these reductions undervalue their portfolio and lower rental yields effect or may breach bank covenants, which may require vendors to increase capital security or reduce debt in keeping with banking requirements,” the report states.

This can result in “developers withholding stock in a healthy adjustment mechanism, already witnessed in Dubai in the past five years,” the report notes. “This would, in turn, cause a prolonged period of lower volumes and flattened sales prices.” Core Savills expects this plateau to start by end of 2017 and last for a period of 12-18 months.

Such a plateauing should see average sales prices at about the Dh1,150-Dh1,250 a square foot mark, the property consultancy notes. Buyers who bought homes at the peak of the market have since seen values shed as much as 25 per cent, especially at the premium end.

These buyers are “faced with a choice of either exiting the market in distress or sticking to the rental market, targeting an already limited tenant pool,” it adds.

Across the residential spectrum, prices have seen dips between “4 and 16 per cent within the last two quarters, depreciating faster than our yearly forecast, estimated at 15 per cent until the end of 2017.”

On the rental side, the twin effects of a soft economy and job redundancies continue to cast a pall on the property market. And until such time their impact recedes, realty transactions are unlikely to see an immediate turnaround.

“The rental market mirrors the sentiment of the sales market as housing allowances remain under pressure,” the report adds.

Mid-tier apartments close to key office areas have managed to hold their own. But villas have had rental dips in the range of 14-17 per cent. The exception has been the Saadiyat Villas, where the decline was limited to under 9 per cent.

“In the wake of these challenging market conditions, landlords in the city area are finally starting to adjust to these market conditions, while others are continuing to lose tenants as a consequence,” the Core report says.

“Under the current economic conditions, tenants have the upper-hand to negotiate lower rents. Although short-term recovery in real estate prices is unlikely, we expect the downward trend to slow down over the next 6-12 months — as the market softens, yet continues to strengthen its fundamentals.”

For information on the real estate sector within the UAE, please visit our sister site, getthat.com.

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