Uncertainty, stagnation, softening — they are all words being touted by Abu Dhabi real estate analysts to describe the current market. Prices have barely moved in the past year, and when they have it has been down marginally.
But behind the scenes there has been comparatively plenty of action. The lower oil prices and linked slowdown of the economy have seen numerous businesses and government entities down scale staff numbers, causing a reduction in demand for both residential properties and office space. The higher dollar and poorer economies in some of the key foreign investment countries, particularly Russia, also has affected the UAE.
The decline in demand has been mostly balanced by developers slowing down their supply of new units. Less than 6,000 new homes entered the market last year, almost half the annual average of 11,000 over the preceding five years, according to market analysts CBRE.
That has helped prices remain mostly stable, rather than falling. Since the start of the year, sale prices for both apartments and villas have barely moved, declining by 1 percent in the areas assessed by property consultants Cavendish Maxwell.
Rents have performed better but still by almost indiscernible measures, according to analysts Reidin. Across the emirate, rents are up 2 percent so far this year and 1 percent compared to 12 months ago.
“This trend is likely to continue in 2016 despite economic slowdown as real estate returns are attractive for the investors. Even though the UAE Government will reduce spending to keep the economic stability, large scale infrastructure projects are still being developed, which will create jobs in the upcoming years,” a Reidin spokesperson tells Arabian Business.
The low sentiment coupled with the fact rents have held their ground in the current environment also has influenced existing property owners to put off any planned sale, limiting the supply of secondary stock on the market.
“Many homeowners who may have previously been looking to sell have turned to renting their property instead as they have not been able to achieve their expected sale prices in the current market conditions,” Cavendish Maxwell research manager Dima Isshak says. “Only sellers who are in need to liquidate their real estate assets are willing to sell their properties at these price levels.
“Buyers are now facing a wide variety of options in both the secondary as well as the off-plan market, although supply remains limited in Abu Dhabi in comparison to the demand levels there. While the gap is slowly closing between buyers and seller’s expectations with many good opportunities for both end-users as well as investors as investment yields are more attractive, the current economic and regional political factors are still creating uncertainties for real estate market buyers.”
Little is expected to change in 2016. At least not until the last quarter, according to Craig Plumb, head of research MENA at property consultants JLL.
“For most sectors, the next stage would be to go up. But that’s not going to happen until demand increases, so we’ve really got to look at what’s going to trigger the increase in demand,” Plumb says.
The catalyst for any upward movement in prices will almost certainly be government spending. That will, in turn, boost sentiment and employment.
“When are they going to increase? It’s not going to be over the next six months,” Plumb says. “The likelihood is that the market will remain subdued. Towards the end of this year we might start to see a pick-up in line with overall increased activity.”
CBRE head of research Matthew Green predicts 2016 will be “another difficult year”.
“We’d expect to see some more deflation across the market,” he says. “[But] I think in many ways, it’s going to be held up by the lack of supply that’s being delivered.
“The balance in terms of supply-demand is definitely going to help it this year.”
The slowdown in the economy is also affecting businesses and thus commercial property. A number of legal firms, banks and public entities have announced cuts or at least freezes to employment. Etihad Rail, for example, announced in January it would cut jobs by 30 percent and suspend tendering for phase two works on a national railway.
Reidin’s data shows the commercial market was stable in 2015, but pressure on rents is expected to worsen this year as the reverberations of the low oil cycle continue.
Green says the pressure is already being felt and is unlikely to reduce for the foreseeable future.
“Abu Dhabi is a market which is driven by oil and gas and public services, so clearly the commercial market is heavily impacted at the moment, given those two sectors are the ones most under pressure,” he says.
“There is a direct link then to the residential markets – not as many jobs or negative job growth will have an impact on the rental market as well.”
Across both residential and commercial markets, the highest quality properties have been somewhat shielded, managing to maintain their value better than lower grades.
“The best properties are full, the poorer quality are going down. That’s quite normal,” Plumb says. He adds that uncertainty over who will be allowed to operate in the new Abu Dhabi financial free zone, Abu Dhabi Global Markets, has effectively frozen leasing for commercial properties there.
Isshak says the anticipated completion of the Hidd Saadiyat villas on Saadiyat Island in the third quarter is likely to add further downward pressure on Saadiyat Beach villa prices, while an additional 1,500 apartments scheduled for supply on Reem Island also is expected to affect prices there.
For buyers and renters alike, affordability remains an issue in the capital. The Abu Dhabi Urban Planning Council has revealed plans for legislation that would require at least 20 percent of every new development to offer affordable housing, although it is yet to have any impact.
Real estate consultancy Cluttons has been particularly concerned, emphasising the topic over the past six months. It says an average expat household has to contend with an average annual rent of $55,541 (AED204,000) against an average household income of $54,179.
Cluttons’ head of Abu Dhabi Edward Carnegy says the shortage presents a significant opportunity for developers.
“Abu Dhabi is clearly short of affordable neighbourhoods. This issue of affordability has been building for some time, initially following the introduction of the federal mortgage cap and doubling of property registration fees. These had the desired effect of cooling the market, but now many people are forced to pay premium rents, limiting their ability to become owner-occupiers in the long term,” he says in Cluttons’ Abu Dhabi 2015/16 Winter Property Market Snapshot.
“This presents a major opportunity for developers to deliver housing that is ‘genuinely affordable’, while still of a high quality, with the potential to offer flexible access to home ownership through models such as ‘rent-to-own’.”
Plumb says more developers are “talking about it” but the capital it not at the stage where 20 percent of new projects are affordable.
Several other new regulations also have been introduced in recent times, including a new licence for master developers, the centralisation of mortgage registration and changes to the management of escrow accounts.
While the newly implemented policies are yet to have much influence on the market, they are expected to reduce the impact of potential economic factors, such as the current low oil prices and prevent shock rises and falls, increasing investor confidence.
“They should be positive for the market, and overall they should improve market conditions, they should improve transparency, they should better regulate the market. So there are positives, but they are not having any immediate impact on the prices or rents,” Plumb says.
And so the game of wait and see continues.