Property investors find value in Abu Dhabi prices

While Abu Dhabi’s real estate market is expected to remain subdued, with price corrections continuing across all sub-sectors this year and new supply outstripping demand, property analysts are optimistic of the capital’s medium-term prospects.

The government’s recent policy reforms and economic stimulus — including a Dh50-billion Abu Dhabi Government stimulus package and Abu Dhabi National Oil Company’s (Adnoc) decision to invest over Dh400 billion in its downstream gas growth strategy over the next five years — play big roles in driving market sentiment.

“Both of these initiatives could filter down to Abu Dhabi’s real estate market in the form of fresh demand for residential property,” said Ivana Gazivoda Vucinic, head of advisory and research at Chestertons Middle East and North Africa. “However, until the effects of these initiatives have been realised, it is likely buyers and tenants will remain cautious.”

Vucinic added: “While we expect the corrections to continue to be a dominant theme in the capital’s residential real estate market – certainly for the remainder of 2019 – due to restrained economic conditions and oversupply, the outlook for the medium and long term for the UAE is encouraging.”

The slowdown across regional and international real estate markets notwithstanding, Mansoor Ahmed, director of healthcare, education and PPP at Colliers, noted that average yields in Abu Dhabi remain relatively high at 5.5 per cent, compared to yields in international markets such as London (2.7 per cent), Madrid (4 per cent), Rome (3.9 per cent), Paris (2.8 per cent), Shanghai (2.1 per cent) and Singapore (2.5 per cent).

Q1 performance

All key sub-sectors in Abu Dhabi’s property market recorded a fall in the sale and rental rates during the first quarter. Apartment and villa rents recorded a year-on-year decline of 12 per cent and 17 per cent respectively, according to JLL. Residential sale prices for prime villas and apartments declined 14 per cent and 15 per cent annually during the same period to reach approximately Dh10,200 per square metre for both the asset classes.

“There is demand for residential across the affordability spectrum, however, in Q1 2019 the market remains cautious and there is a preference for more economical options as opposed to upgrading for the same price,” said Peter Stebbings, head of JLL Abu Dhabi.

Stebbings said the majority of supply this year will be in the middle of the spectrum with a significant number of handovers at Raha Beach and Reem Island. And although forecast supply this year is one of the highest in the last 10 years, Stebbings believes “the performance will be more threatened by weak job growth and reduced spending than supply factors”.

Office segment

The office sector also recorded a softening of prices, with headline rents for both grade A and grade B office space declining annually in the first quarter by 5 per cent and 16 per cent respectively. Although the majority of grade A office spaces have maintained adequate occupancy levels, the JLL report also revealed that year-on-year, market-wide vacancy rates reached 25 per cent.

“There were few completions in 2018 and the supply side of the equation remains tolerably balanced, albeit ADGM [Abu Dhabi Global Market] still has some way to go to reach stable occupancy,” said Stebbings.

Key trends

As a recent trend, UAE property developers have been shifting their focus to affordable housing projects, “where customers, including expatriates, can purchase plots and custom-build properties within their budgets”, said Sameer Barakat, executive director of Provis. A perfect example, he added, was the sellout of Alreeman project, located in the investment zone of Al Shamkha.

Furthermore, Sean McCauley, CEO of DevMark points out that investor sentiment has been extremely high of late with Dh1.6 billion worth of sales concluded within a few days following the launch of Alreeman by Aldar Properties.

“The success of this launch proves that there is a healthy appetite among investors for well-priced properties with true unique selling points,” he said.

With the UAE one of the biggest markets for affordable housing in the GCC, Barakat said this will help property developers focusing on affordable projects to increase their share in total real estate projects by 2022.

Ahmed agrees the market is moving towards affordability, while competitive prices along with flexible payment plans have become the norm in order to entice investors.

“Developments with good accessibility and sufficient community facilities, such as convenient retail, food and beverage, leisure and family entertainment nodes are performing better than standalone developments,” he said.

In the medium to longer term, Ahmed expects such well-developed and well-managed communities to maintain higher levels of investment appetite and high occupancy levels.

Edward Carnegy, head of Savills Abu Dhabi, agrees that a key for developers now is to have a more unique offering, whether it is the unit mix, specifications, amenities or accessibility.

“Developers are now using more attractive payment plans, including extended post-handover payment plans for off-plan units,” he said, adding that low deposits and affordable monthly payments combined with a better product are essential to drive demand in the housing market.

Abu Dhabi-based Imkan, for instance, is offering a wide variety of alternatives for off-plan and post-payment plans. “In fact, we are the first developer in Abu Dhabi to introduce post-payment plans that are available up to nine years,” said Walid El Hindi, CEO of Imkan.

Both Imkan’s Nudra and Pixel projects are the first on Saadiyat Island and Reem Island respectively to offer a post-payment plan for an off-plan development. “We are also offering purchasers at our Nudra development the unique opportunity to fully customize their interiors – the first project in Abu Dhabi to offer the option,” said El Hindi.

Carnegy said some developers are taking it a step further and offering rent-to-own schemes on completed products, which “we believe will be very attractive for the long-term rental market”.

Outlook

There has been a good number of enquiries during the first quarter said Stebbings, indicating a more positive outlook for the sector this year, with government spending in the form of Ghadan 21 and the Adnoc investments over five years remaining key drivers.

“Certainly, there are hopes the injection into Adnoc will lead to growth in downstream oil and gas industries and services and there are indications that international businesses are looking to invest in Abu Dhabi for the medium to long term as a result,” he said.

McCauley expects sales and rental prices to stabilise towards the end of the year and soften only slightly during the second quarter and possibly the third quarter, as “I believe that prices have almost bottomed out”.

Factors impacting the performance of the Abu Dhabi property market include the number of residential units to be delivered this year, which is anticipated to be in the region of 11,000 units; the number of new project announcements; the speed of delivery and the resultant impact of the Ghadan 21 stimulus and the possible relaxation of further regulatory and fiscal policies.

“Further rental declines may be on the horizon if the influx of new supply of residential units results in increased vacancies, which would then force landlords to accept lower prices,” said McCauley.

Meanwhile, El Hindi believes Abu Dhabi will continue to offer “value for money” for investors when compared to its global counterparts. “The high ROI and large portfolio of properties available in Abu Dhabi tell us there is large interest and room for the market to continue to progress.”

Barakat agrees, noting that the UAE will continue to provide some of the highest returns in the world, despite price fluctuations last year. “Attractive prices for completed properties have also expanded buyer markets, which give developers and homeowners opportunities to target new segments,” said Barakat.