Villa prices to drop by at least 15% in Abu Dhabi this year

Sales prices in Abu Dhabi’s residential market are expected to continue dropping this year, a report by Core Savills has found.

Prime and mid-prime villa values are anticipated to fall by at least 15 per cent while apartments rates are expected to slump 7 per cent, the report stated.

The drop in prices is comparable to 2016 levels as similar market conditions persist, it added.

Sales price drops have been accelerating throughout the last 12 months, with the highest quarter-on-quarter dip witnessed in Q4 2016. On average, the apartment sales prices fell by 7-10 per cent year-on-year while villa prices lagged around 15 per cent.

“The residential supply in 2016 remained muted with delivery levels at their lowest in a decade, as many developers held back stock in the hope of a revival in buyer sentiment. Units which came onto the market in 2016 have been slow to move, unless they were on presale commitments of the past. Despite the lower delivery of new stock, rising levels of existing secondary stock in the market continue to negatively impact absorption and in turn sales prices,” the report explained.

Many of the prospective buyers are increasingly anticipating further price drops over the next few quarters as they continue to be cautious of the ongoing uncertainty.

Meanwhile residential rents in Abu Dhabi have also dropped, particularly for the top end of the villa market which saw dwindling demand and posted drops of over 20 per cent year-on-year in Q4.

“Restructuring measures across various industry sectors and the trimming of staff housing allowances and salaries continues to negatively affect rental demand with many tenants opting to downsize or move to more affordable units,” Core Savillis said.

Apartments have seen drops of between 7-10 per cent with smaller units such as studio/one-bedroom witnessing higher occupancies.

The reinstatement of the 5 per cent rental cap has been received with mixed reviews from tenants, with a section thinking that this will help curb rental rise. However, as the market has already been correcting itself, few tenants are apprehensive that landlords also increase rents by 5 per cent.

The new 3 per cent municipality fee payable by every expatriate tenant in Abu Dhabi has come as a “double shock” as it is backdated to February 2016 and the portion of the fee from last year is payable as a single lump sum, rather than monthly.

“This is adding stress to tenants who are already facing rising overall household costs,” the report said.

Core Savills CEO, David Godchaux said: “We have seen landlords in mainland areas, who have been inflexible with re-negotiating better rents, losing tenants to outer, more affordable areas.

“Interestingly, this migration is statistically under-reported and is artificially feeding stock in these outer areas. This may act as a risk for developers who overestimate potential demand for the outer mid-market communities due to the spurious swell in demand stemmed from the lack of elasticity in prices in core areas.”

In Reem Island, almost 2,400 units are expected to come to the market in 2017.

“This excess supply will be hard to absorb and is expected to cause a noticeable drop in both rental and sales values,” said Godchaux.

“However, some of this stock is anticipated to be absorbed by expat tenants currently renting in the mainland who aspire to be on Reem Island due to better build quality and infrastructure and may consider the move because of the rental rate drops.”

Looking ahead, a substantial recovery in the near term, at least for the next 12-18 months is not expected.

“Despite the softened outlook in the near term, we foresee a self-adjustment in values as the Abu Dhabi real estate market evolves and moves towards market maturity in the mid-term,” added Godchaux.