Abu Dhabi’s apartment rents to drop by 7% in 2017

Prime and mid-prime villa values are anticipated to fall by at least 15% while apartments are anticipated to trail at 7%, a drop close to 2016 levels

This image is for representation purposes only.
This image is for representation purposes only.

Abu Dhabi’s residential market will stay flat as additional supply is expected to hit the market this year.

Prime and mid-prime villa values are anticipated to fall by at least 15% while apartments are anticipated to trail at 7%, a drop close to 2016 levels as similar market conditions persist, according to the latest market outlook for 2017 from real estate firm Core Savills.

Mid-market communities, particularly buildings with smaller units are predicted to maintain relative sale and rental price resilience and stay flat.

The reinstatement of the 5% rental cap has been received with mixed reviews as some tenants are apprehensive that landlords may interpret this law as an opportunity to increase rent by 5% while the 3% municipality fee payable by expatriate tenants, is adding stress to overall rising household costs.

Core Savills CEO, David Godchaux, says: “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.

“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.

“Core Savills expects this migration to heat up competition amongst mainland landlords/developers as they undercut to keep tenants and maintain yield levels.

“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.

The report also points out that although the current market may be witnessing headwinds, opportunities continue to exist for investors.

“As historically seen in most markets, a sustained downturn invariably pushes investors to deploy a flight to quality towards prime assets. With this backdrop, the residential areas expected to outperform the present market conditions are Saadiyat Lagoons and Yas Acres,” highlighted the report.

Godchaux further emphasised: “With the overall education sector gaining traction, student housing emerges as a sunrise sector awaiting structured investment as it remains under-represented in Abu Dhabi and the wider UAE region.”

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