Abu Dhabi rents decline again in Q1 but some units buck the trend

Residential rents in Abu Dhabi dropped by as much as 22 per cent in the first quarter of 2018, although there were some exceptions, according to property portal Bayut.

“The Abu Dhabi property market heavily favoured renters and buyers in the first quarter,” Bayut said in a soon to be published report.

The UAE property market has declined steadily in the past two years following a three-year slump in oil prices but the market is expected to bottom out later this year before starting to recover in 2019, experts say.

Both apartments and villas across most neighbourhoods in Abu Dhabi saw rental and sales prices decrease compared with the same period in 2017, Bayut said. The biggest rental drop was recorded in Hydra Village on Al Reem Island, where 3-bedroom villa prices fell by 22.7 per cent and were being offered for an average price of Dh85,000 a year.

Two-bedroom apartments in Al Reem registered the second-largest drop, of 16 per cent, according to Bayut.

Rents for four-bedroom villas in Khalifa City fell by 8.5 per cent, while five-bedroom villas in Al Raha Gardens declined by 8.2 per cent.

For villas, categories that bucked the trend were three-and five-bedroom villas in Mohammed bin Zayed City, which registered increases of 9 per cent and 3 per cent, respectively, and three-bedroom villas in Al Mushrif, which rose by 2.8 per cent.

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[ Aldar plans Dh10bn Alghadeer extension near Dubai border ]

[ Abu Dhabi rental declines to slow in 2018, says Core Savills ]

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For apartments, the only category that had an increase was the studio market in the Corniche, where prices increased by 7 per cent.

“Price decreases in the rental sector will allow tenants to upgrade to larger spaces, move to a new district, or, take the plunge into property ownership, with softening prices making it a more affordable option,” the report said.

In the first three months of 2018, studio sales prices in Al Reef plummeted by 20 per cent, and two-bedroom apartments in Yas Island fell by 16.3 per cent.

There was, however, an increase of 0.3 per cent for 3-bed villas on Yas Island, and the outlying district of Al Ghadeer, where prices for two-bedroom villas rose by 9 per cent.

Al Ghadeer, close to Dubai's eastern border, is being extended by landowner Aldar Properties, Abu Dhabi’s biggest listed property firm. It unveiled a Dh10 billion master-plan to transform the neighbourhood into a 3 million square metre mixed-use scheme called Al Ghadeer over the next 10 years.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”