Abu Dhabi: Investors looking at Abu Dhabi’s property market would be wise to remember that size doesn’t matter — in fact, the smaller the better.
According to research by Chestertons, a property consultancy, smaller residential units recorded the highest investment yields at 7.8 per cent, with yields dwindling the larger the unit is.
Three-bedroom villas, for example, saw 6.7 per cent yields in the second quarter of 2016, while four-bedroom and five-bedroom villas saw yields of 5.6 per cent and 4.6 per cent respectively.
On average across the emirate, the yields were five per cent, a year-on-year decline from the near-seven per cent yields recorded in Q2 2015. This was due to lower sales prices and rental rates this quarter whereas Q2 2015 saw an increase in rates.
The figures are also lower than those seen for Dubai’s apartments where the average gross yield was 7.5 per cent, with the apartments in Discovery Gardens and International City yielding 10.2 per cent and 9.4 per cent respectively.
Prime areas in Abu Dhabi such as Saadiyat Island and Reem Island saw yields of over six per cent in Q2 2016, with the highest yields being recorded in Reef Downtown, reaching 8.8 per cent.
“Although the market is likely to see marginal declines in the remainder of the year, rental yields will remain healthy and rewarding for investors. The uncertainties of the overall market conditions, such as the slow recovery of oil prices, will continue to place pressure on the residential market,” said Dima Isshak, head of research and advisory for the UAE at Chestertons.
She pointed that demand in Abu Dhabi has mostly been for units in high-end residential communities. However, there is also growing demand for affordable accommodation — a segment where supply is scarce.
In its report, Chestertons noted that around 500 units were delivered to the market during Q2 2016, and nearly 3,500 units are expected to enter the market by the end of this year. Demand is expected to be limited on the back of macroeconomic challenges and the resulting weakening in investor sentiment.
“The limited pipeline supply of residential real estate in Abu Dhabi has aided in keeping the rates of decline relatively low, especially in the luxury villa segment,” Isshaq said.
Apartments saw a two per cent decline in rental rates in Q2 2016, with average lower-range rates for studios and one-bedroom apartments at Dh40,000 and Dh52,000 respectively.
“Luxury segment of the emirate may bear downward pressure in rents through reduction in spending… Rental rates are expected to follow the sales trend in the Abu Dhabi market, with marginal declines throughout the second half of 2016,” the Chestertons report said.
Other property consultancies such as JLL and CBRE have also echoed that sentiment in their Q2 2016 reports, with JLL saying the Abu Dhabi market may be seeing a downward trend soon. Their report said the market was starting to show early signs of decline after 18 months of relative stability, with rents in Q2 declining for the first time in three years.
