Abu Dhabi property slump to continue amid recovery signs in Dubai, Sharjah

The Abu Dhabi residential property market is expected to see further corrections in the coming months but there are signs of improvement in Dubai and Sharjah, according to consultancy Cluttons.

In its UAE report, the firm forecast the emirates’ residential market would see improving conditions in 2018 and 2019 due to an increase in economic expansion, leading to marginal growth in some segments by the end of next year.

However, in the short term one concern remains the impact the January introduction of a 5 per cent value added tax rate on the market.

“We see a number of positive indicators for the UAE’s property market as we head towards the fourth quarter of 2017. While Expo 2020 is well documented as the shining light on the horizon, we view the government’s plan to introduce a formal tax regime as a tremendously positive step and are confident that it will help cement much-needed alternative revenue streams,” said Faisal Durrani, head of research at Cluttons.

“Once the market absorbs the changes caused by the introduction of VAT, we expect to see a resumption in growth.”

Abu Dhabi

Cluttons said residential values remained under pressure in the UAE capital with a decline of 0.9 per cent seen in the first six months of the year

This marked a slower rate of decline than that seen last year, reducing the annual change in prices in the 12 months to the end of June to 6.3 per cent, compared to 7.5 per cent in Q1.

Apartment prices saw the largest correction in the first six months of the year, down 1.4 per cent, compared to 0.3 per cent for villas.

The firm also said there was notable decline in demand for property since the start of the year linked to diminished buyer and investor confidence while rising supply levels and slower growth had sustained downward pressure on rents.

Rents were down 3.6 per cent during the second quarter making for an annual rate of decline of 11 per cent, due to 12 per cent and 10.1 per cent declines in apartment and villas rates over the last year.

Cluttons predicted more corrections to come for the Abu Dhabi market due to continued pressure on oil prices.

The firm said average rents are expected to end the year 8 to 10 per cent lower than 2017 as demand remains subdued.

Sales prices are also expected to end the year down 5 to 7 per cent due to weaker overall sentiment and lower rates of job creation.

“The risks to our forecast remain skewed to the downside, with wider global macro issues topping the list of our concerns,” the firm said.

Dubai

In Dubai, residential values were down 1.5 per cent in the second quarter and 5.8 per cent year-on-year, marking the 12th consecutive quarter of price declines.

Apartment values were down 1 per cent during from April to June, with villas down 2.2 per cent.

Despite this, Cluttons said a soft correction in the market appeared to be coming to an end with many locations showing “signs of bottoming out”.

Only seven of the 32 submarkets tracked in the emirate saw price falls in the first six months in the year, with no change in values elsewhere.

For rentals, Cluttons said rents were expected to end the year 5 to 7 per cent lower than in 2016.

However, sales may be buoyed in anticipation of Expo 2020 with villas prices expected to be down 10 per cent and apartments forecast to show virtually no change on the previous year.

“Our view is that the rental market’s fortunes remain tied to the looming Expo 2020. At this stage, the mega event is one of the primary upside risks to our outlook, especially as we expect it to drive up the rate of job creation and tenant demand, but this is not expected for another one to two quarters at least,” said Murray Strang, head of Cluttons Dubai.

Sharjah

Across the border in Sharjah there was a mixed picture with Cluttons forecasting rents would end the year down 5 per cent.

The firm said villas wee expected to see growth of 3 to 4 per cent following a rise of 1.5 per cent in the first half of the year.

“The villa market in Sharjah continues to offer good value for money when compared to Dubai, and Abu Dhabi, which means households faced with rising living costs in these emirates are increasingly seeking out family home options in Sharjah. This has resulted in a turnaround in the performance of the villa market, as demand has now edged ahead of supply,” said Suzanne Eveleigh, Clutton’s head of Sharjah.

However, apartments are likely to end the year down 10 per cent.