Contractions in household incomes and workforce redundancies in both the public and private sectors have weakened real estate demand in Abu Dhabi, a new report by consultancy Core Savills has found.
The residential sales market in the UAE capital has seen prices dropping between 4 per cent to 16 per cent within the last two quarters, the report stated.
The prime market witnessed steeper softening, since occupiers are favouring affordability and with investors facing more challenges to lease high-end units.
Meanwhile the rental market “mirrored the sentiment” of the sales market since housing allowances remain under pressure.
“While mid-segment apartments located within close proximity to offices have been relatively resilient, villas have witnessed rental decrease in the range of 14-17 per cent with an exception of Saadiyat Villas which displayed a lower rental decline under 9 per cent,” the report stated.
Tenants now have the upper-hand to negotiate lower rents in the residential sector.
“In the wake of these challenging market conditions, landlords in the city area are finally starting to adjust to these market conditions, while others are continuing to lose tenants as a consequence,” the report added.
Looking ahead, new supply and the rise in secondary stock coming to the market are expected to exert further downward pressure on sales prices in the short term, the report said. However, the mid-term prospective is “not as dark as many say”, it added.
Andrew Ausama, associate director at Core Savills, said: “Despite these market conditions, we expect the pace of price drops to slow down over the next six to 12 months as the market reaches a critical point with sales price bottoming at Dhs1150-1250 and leasing prices at Dhs70-75 per sqft.
“Developers/landlords may resist further drops in pricing as these reductions undervalue their portfolio as lower rental yields affect or may breach bank covenants which may require vendors to increase capital security or reduce debt in keeping with banking requirements.”
Any resistance for further drops may result in developers withholding stock in a healthy adjustment mechanism already witnessed in Dubai in the past five years, added David Godchaux, CEO of Core Savills.
“This would in turn, cause a prolonged period of lower volumes and flattened sales prices,” he said.