When is it a good time to buy property in Abu Dhabi? Image Credit: Gulf News Archive

For those considering to move to Abu Dhabi or buying property there, it helps to know that prices in the emirate are expected to fall this year for several reasons. First, a high volume of upcoming supply is expected in all segments. Additionally, the lack of clear laws and regulations to protect potential investors — and the insufficient clarity in ownership rights — is impacting the investment and sales markets.

There is still a lack of adequate financing for certain developments. For instance, at Al Reef Downtown, where the target is the middle income population, banks offering loans require a large down payment (about 40 per cent), beyond the means of most potential buyers.

And the secondary sales market is still slow with many developments not yet handed over.

In terms of residential apartments, prices have fallen over the last year, with an average drop of 26 per cent since Q1 2010. The low-end market has been most affected (-36 per cent) compared to the high-end segment (-12 per cent). In terms of areas, the mainland has seen rentals drop 35 per cent compared to a decline of 28 per cent on the island, mainly due to the large amount of supply delivered in the area in the form of both residential buildings and apartments within villas.

Prices are likely to come down further as more supply is delivered. Sales are relatively slow with few completed properties available, but transactional volumes will improve in 2011 as investment area stock is completed.

In line with apartments, residential villa prices are down an average of 20 per cent since Q1 2010. The most affected areas include Al Reef Villas (-25 per cent), because, although the development is attracting a large amount of enquiries, the sheer volume of units is pushing prices down — especially as expatriate owners may have bank commitments. Prices start at Dh85k for 2BR units, reaching Dh150k for 5BR properties, but will come further under pressure as subsequent phases are delivered.

Some villa developments, however are proving very popular and have been able to better sustain rental levels. Golf Gardens has outperformed market with rents down only 3 per cent compared to Q1 2010, due to the quality of the development and the good community facilities.

Meanwhile, commercial rents have declined since the peak and good quality fitted office space in a new building can now be found between Dh1,200 up to Dh2,000 per square metre. Currently, there is very little demand for buying office space, but this may improve as Sky Tower and Infinity Tower on Reem Island are delivered.

Since rental rates are falling and Asteco believes this is still going to continue in the mid to long term, yields are coming under pressure as well. Investors need to readjust their expectations in terms of returns as there are no more double-digit yield returns.

Proper research is required before deciding on where to invest, especially thinking about the longer-term outlook in terms of surrounding developments, master plan, picking the right property within the right location.