Abu Dhabi’s residential market to slow down in 2016

Abu Dhabi: Abu Dhabi’s residential property market is expected to see a slowdown in demand in the next 12 months, after relatively slow but positive market performance in 2015.

However, this may not lead to a major drop in rental rates due to the limited amount of new supply that is coming online this year, according to the latest report by Asteco, a real estate services firm.

“The UAE’s overall market conditions are under pressure due to lower oil prices, and this will lead to a reduction in government spending. In turn, this could impact future demand as growth slows down and salary levels remain stable,” the report stated.

It added that while lower demand may put pressure on both rental rates and sales prices, limited supply is likely to minimise the pressure, at least compared to Dubai.

“With the limited amount of new supply anticipated for delivery in 2016, in addition to a slowdown in job creation, rental rates are overall expected to remain at their current levels.

However, we’re expecting a slight increase in rental rates for some popular projects, in addition to some older buildings inside Abu Dhabi City that had not increased rates in 2015,” as per the report.

In 2016, Abu Dhabi is expected to add 3,000 apartments and 850 villas to its residential supply. Last year, a total of 2,000 apartments and 100 villas were delivered, including 1,010 units in two projects on Reem Island, and 312 units on the Corniche.

Apartment rental rates rose by five per cent on average in 2015, with prime projects achieving up to 10 per cent growth. Meanwhile, apartment sales prices went up 3-4 per cent during the year.

Asteco said it did not expect to see any major drop in residential sales prices in 2016 for completed properties due to sustained demand by owners-occupiers and investors.

Sales for new launches, which slowed down in 2015, are set to pick up once buildings are nearer completion. This could occur in 2017 rather than 2016, however.

“Whilst reduced government spending affected the Abu Dhabi market, the emirate experienced stable sales prices and continued rental growth as demand, albeit more subdued, continued to outstrip supply in specific market segments.

The continued obstacle in the Abu Dhabi market is the lack of transparent property ownership laws and regulations, which continued to impair sales especially for potential investors residing abroad. However, this will potentially be addressed with the new legislation becoming effective in 2016,” said John Stevens, managing director of asset services at Asteco.

At the top end of the market, prime two-bedroom apartments on Abu Dhabi Island were renting at an average of Dh191,000 in 2015 — up from Dh175,000 in 2014. By the end of 2015, the number of residential units reached around 234,000 units.