UAE - The current decline in sales prices and rental rates in Abu Dhabi's residential market is predicted to continue with the addition of circa 6,000 units during the remainder of 2018, according to the latest research from Chestertons.

Approximately 1,600 units were delivered to the market in Q1, predominantly on Yas Island, Al Raha Beach, and Reem Island and a further 6,000 units are expected to be delivered over the rest of the year, negatively impacting sales prices as investors wait for the best possible deal and tenants negotiate new contracts as landlords attempt to keep properties occupied.

Overall sales prices of apartments and villas softened in Q2 by three per cent and four per cent respectively quarter-on-quarter, while apartment and villa rents continued to fall, three per cent and one per cent respectively.

"The Abu Dhabi residential market is continuing to face tough market conditions due to increased supply. The sales market is faltering as potential investors wait it out for the right property, at the right price. We're seeing an increased trend of investors being more cautious and waiting for stability to return to the market," said Ivana Gazivoda Vucinic, head of Consulting and Valuations and Advisory Operations, Chestertons MENA.

The apartment sales market softened across the board. Saadiyat Island witnessed the steepest decline with a six per cent drop, with prices falling from Dh1,497 per square feet in Q1 to Dh1,412 per square feet in Q2. Al Ghadeer and Reem Island fell by four per cent and three per cent respectively with prices in Al Ghadeer averaging Dh923 per square feet and on Reem Island at Dh1,114 per square feet in Q2. Al Raha Beach and Al Reef witnessed the strongest return with just a one per cent decline now selling at Dh1,504 per square feet and Dh910 per square feet respectively.

The villa sales market witnessed a more marked decrease with Al Ghadeer dropping seven per cent quarter-on-quarter to Dh809 per square feet and Al Raha Beach Area prices falling six per cent to Dh1,081 per square feet. Al Reef and Al Raha Gardens fared slightly better with decreases of two per cent and four per cent at Dh692 per square feet and Dh768 per square feet respectively. Khalifa City was the only area where prices remained unchanged at Dh895 per square feet.

Landlords looking for some respite will be disappointed, with all areas returning another quarter of decreasing rates. In the apartment market the Al Raha Beach area witnessed a seven per cent decrease with a one-bedroom's now available for Dh97,000 pa. This was followed by Khalifa City where a decline of six per cent was witnessed with a one-bedroom available for Dh48,000 pa. The most resilient location for apartment rents was Saadiyat Island, overall there was a one per cent decrease, however, in the one-bedroom category, rents remained unchanged.

Villas in Al Reef and Khalifa City, both witnessed a three per cent decline with three bedroom units now available for Dh119,000 and Dh149,000 respectively. In Mohammed Bin Zayed City, Al Ghadeer and Reem Island prices remained flat, with three-bedroom villas leasing for Dh125,000 pa, Dh120,000 pa and Dh220,000 pa respectively.

"Landlords are having to pull out all the stops to ensure continued occupancy of their properties. Incentives include reduced prices, multiple cheques and even waving agency fees. Adding to the pressure on landlords has undoubtedly been the recently implemented 'property tax' by Abu Dhabi Municipality, with rates for apartments now at five per cent, while villas are subject to 7.5 per cent tax," added Vucinic.

Despite the continued weakening of sales and rents, there are plans by Abu Dhabi government to accelerate the economy over the next three years with an Dh50 billion stimulus package. A new body, called Ghadan, will be created to develop new technologies and investments to speed up economic diversification locally and regionally. Adnoc will also invest over Dh400 billion in its gas downstream growth strategy.

"It is hoped these initiatives could filter down to the Abu Dhabi real estate market through the creation of new jobs which is likely to create fresh demand for residential property," added Vucinic.

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