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Abu Dhabi’s property market in sell-off mode

More off-plan buyers rush to sell before values take another hit: Cluttons

Image Credit: Abdul Rahman/Gulf News
Marina Square in Reem Island, Abu Dhabi. Property values are likely to drop this year.
Gulf News

Dubai: Abu Dhabi’s property market is starting to see sell-offs … and it’s not just by the developers alone. Investors who bought from off-plan launches in the last two years are putting these up for sale in greater numbers. But thankfully, there aren’t that many distress sales happening where the owners are forced to sell at steep discounts to get a buyer.

“There is a rising number of buyers looking for distressed sales, which are yet to materialise in any meaningful quantity,” states the latest Abu Dhabi real estate update from the consultancy Cluttons.

The lack of buying support comes even as the UAE capital’s property values are likely to drop between 8 and 10 per cent this year.

Property owners are being forced to take drastic actions where they cannot make an exit at a decent price. “In some instances, such as those who purchased property on Reem Island, the inability to achieve desired sale prices is prompting vendors to enter the rental market to generate cash flows,” the report adds. “These ‘accidental’ landlords are competing for a limited pool of tenants and this is hampering the rental market’s ability to register any meaningful growth.”

Things are getting loaded against buyers and sellers in other ways. With limited new off-plan launches taking place — unlike in Dubai — some developers are using the circumstances to hike service charges and even transfer fees, Cluttons states.

“For potential home buyers, rising inflation and a higher cost of living, exacerbated by the seemingly constant downward readjustment of energy and utility subsidies, is adding to financial pressures,” the report notes. Compounding the distress is the removal or cuts in housing allowances.

“Clearly, this is pushing the home ownership dream out of reach for many,” the consultancy says. “The majority of buyers on the market appear to be testing the waters and taking significantly longer to close deals, compared to two years ago.”

Lack of activity

According to Edward Carnegy, Head of Cluttons Abu Dhabi, “Companies are removing housing allowances to cope with the financial pressures, which is making it harder for potential buyers to purchase a property. That’s why this segment (the high-end) of the market is currently experiencing the most significant price corrections.”

The lack of activity on the sales side is mirrored on rentals too. Average rents could drop by 5-7 per cent on top of the declines in 2016, when they were down 12.6 per cent across Abu Dhabi’s residential investment areas. As for the top-end of the residential space, the fall will be precipitous, in keeping with the situation in the job market.

“The supply demand equation is also clearly out of kilter, with supply levels likely to continue edging ahead of demand as the year progresses and more schemes complete,” said Faisal Durrani, Head of Research at Cluttons. “With no respite expected from the economic pressures curtailing jobs growth and also catalysing redundancy programmes, it is our view that the residential rental market will continue contracting throughout 2017.”

But there is one asset class within one location that seems to be bucking the trend. Average apartment lease rates at Saadiyat Island rose by 11 per cent over the last 12 months, “driven by the emergence of a community feel in the submarket as more residents move in to the area that has been positioned as an exclusive community. It is worth noting that when homes were first made available to tenants in this area over two years ago, landlords were forced to offer very competitive rents in order to entice tenants.” (But, interestingly, high-end villas on Saadiyat Island registered the most significant decrease in rents last year — by 28.2 per cent.)

Factbox: Economic uncertainty starts telling on office rentals too

* Across Abu Dhabi’s residential investment zones, property values were down 6 per cent on average last year. Higher up the value chain, the impact was deeper, with sea-view villas on Saadiyat lower by 19 per cent, to now hover at Dh1,800 a square foot, according to Cluttons. Apartments on Reem Island — down 11.1 per cent — experienced the second largest correction last year, to now stand at Dh1,300 psf.

* Even Abu Dhabi’s office rentals — including at Grade A buildings — are feeling the pinch. During Q4-16, there was an average Dh50 a square metre dip in asking rents. “We understand that a number of businesses reliant on public sector spending are being forced out of the market due to a lack of lucrative contracts, which is adding to the diminished number of enquiries and requirements,” Cluttons reports.

— M.N.

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