Homebuyers and tenants are having the upper hand in Abu Dhabi as property prices have continued to fall across all the segments in the third quarter of 2018.
“We have seen sales prices and rental rates decline due to pressure from a variety unfavourable market conditions,” said Ivana Gazivoda Vucinic, head of consulting at Chestertons Middle East and North Africa (Mena).
New supply entering the market is one factor, however, she said ongoing redundancies in the job market and reduced rental allowances from companies is resulting in further units being available in the marketplace and therefore hampering rental rates and sales prices.
Abu Dhabi apartment rents declined by 2 per cent quarter-on-quarter to reach an average of Dh127,000 per year, recording a year-on-year decline of 6 per cent in the third quarter, according to JLL.
The sales market has also followed a similar trend, with prime villas and apartments recording a fall of 2 per cent (14 per cent Y-o-Y) and 3 per cent (12 per cent Y-o-Y), respectively, to reach Dh10,700 per square metre in Q3.
“There has yet to be a return of employment growth meaning increases in supply have led to higher vacancy and consequently falls in rents,” said Peter Stebbings, head of Abu Dhabi office and senior director valuation advisory, Mena, at JLL.
In terms of sale rates, he said job security, rising interest rates and low rents have meant purchasing has been less attractive.
The UAE capital saw more than 830 units entering the market in Q3, bringing the total residential stock to 255,000 units. The total stock will increase further as around 4,000 additional residential units are currently scheduled to be delivered by the end of the year, according to JLL.
While the overall market has been affected by the inflow of new residential supply coupled with reduced demand, Ali Siddiqui, research analyst at Reidin, said there are certain areas that have been affected more than the others.
In the apartment segment, he said, areas such as Al Reef Downtown, Al Reem Island and Al Raha Beach all witnessed a decline in their respective sales prices. Whereas in the villa segment, areas such as Al Raha Gardens and Al Reef had a quarterly decline of 3.1 per cent and 2.2 per cent in sales prices.
On the other hand, Reidin research showed Saadiyat Island posting an uptick in sales price of 2.1 per cent on a quarterly basis.
“Within a specific district, larger units have seen higher drops than smaller units, owing to the nature of the investment,” said Siddiqui.
In the office sector, the prices have also continued to decline in the third quarter, as demand has remained weak owing to low business and economic growth. Sales and rental prices dropped by 1.2 per cent and 2.3 per cent, respectively, on a quarterly basis, according to Reidin.
Flight to quality
The current market condition has given more bargaining power to house-hunters who are now able to negotiate a better deal at a reasonably cheaper price or upgrade to bigger or better units with minimal or no extra cost.
“We’ve undoubtedly seen a flight to quality, where tenants are taking advantage of the downturn by upgrading to larger units with better-quality specifications, potentially more amenities and located in more popular areas,” said Vucinic of Chestertons.
Siddiqui said the current pressure on rentals have forced landlords to offer various incentives such as flexible payment scheme and even rent-free stays to new tenants.
“Some landlords are even waving agency fees for their new tenants. Landlords are even reducing their rental rates for their existing tenants [in a bid to stop them from moving],” he added.
Sami Hachem, Senior Surveyor, advisory and transaction services at CBRE, said the residential market is still heavily dominated by rental activities, and with the continued downward pressure on rental rates, many tenants are looking to upgrade into newer or larger accommodations for a similar price.
And the impact of which was felt in the sales market. While residential property prices have already fallen in the range of 12-14 per cent from what it was last year, this hasn’t translated into more sales transactions in the capital as not many tenants are considering to buy property due to various factors.
Due to the declining rental rates and sales prices, the affordability scale is changing, however, Vucinic said there are still factors, such as the availability of a deposit, that are preventing some buyers from entering the market.
Stebbings agreed that mortgage costs have increased and there is still some tension around job security, but “as capital prices reach the bottom of the cycle there is naturally interest in anticipation of recovery”.
“We are yet to see a growth in owner-occupation of residential units, although there are a few signs that interest may be increasing in this possibility,” he added.
As sales price continued to drop this quarter, Siddiqui said real estate investors remain cautious and are monitoring the market movement closely.
As a result of falling sales prices, however, “some residents who plan to stay in the UAE for a longer period can be seen opting to purchase a property instead of renting as they feel it is a better financial decision”, Siddiqui said.