Soft economic sentiment a drag on Abu Dhabi property sales

Investors cannot sell completed Abu Dhabi properties at a profit, so they are forced to rent them out on flexible terms, which pressures rents.

Investors in off-plan apartments in areas such as Reem Island are finding themselves unable to sell the homes once they are completed. Ravindranath K / The National

Continued weakness in the Abu Dhabi economy is forcing more property investors to become “accidental landlords”, as they are unable to sell units that are nearing completion at a profit, according to a new report by Cluttons.

These investors’ willingness to offer more flexible terms to potential tenants to secure income is also placing pressure on rents in an already weak market, says the property company’s Spring Abu Dhabi Property Market Outlook.

It said that capital values in investment areas dropped by 1.9 per cent in the first quarter of this year, meaning the year-on-year decline in values was 7.6 per cent, compared with a 6 per cent year-on-year decline recorded at the end of 2016.

Cluttons said that weak economic conditions, rising inflation and high costs of living are curbing demand in residential and commercial markets, with the steepest declines in the luxury market.

It said that for landlords who had purchased off-plan homes that are now being completed in developments at places such as Reem Island, “the inability to achieve desired sale prices is prompting vendors to enter the rental market to generate cash flows”.

“These ‘accidental’ landlords are competing for a limited pool of tenants and this is hampering the rental market’s ability to register any meaningful growth.”

Average rents are now 15 per cent lower year-on-year.

Edward Carnegy, the head of Cluttons Abu Dhabi, said: “Anecdotal evidence shows that organisations continue to trim senior-level executive positions, which are a key source of requirements for high-end homes. In other cases, companies are removing housing allowances to cope with the financial pressures, which is making it harder for potential buyers to purchase a property.”

Faisal Durrani, the head of research at Cluttons, said that the decline in demand for luxury accommodation was not unique to Abu Dhabi and that a similar trend could be identified in many international markets whose economies are influenced by oil prices.

He said that more trimming of employment is likely, with even sectors that have been identified as growth prospects for economic diversification affected, such as aviation.

Supply in submarkets such as Reem Island is also predicted to increase, leading to further anticipated falls in rents and prices. Cluttons is predicting that average rents will end this year between 5 and 7 per cent lower than 2016, while capital values will fall by 8 to 10 per cent.

Despite this, Mr Durrani said there are still opportunities for developers to create the right type of product – especially affordable homes in investment zones.

“We were saying three years ago when the market was at its previous peak that there wasn’t enough affordable space, and demand for affordable homes is now stronger than it has ever been.”

According to Cavendish Maxwell, rents for apartments and villas in investment zones continued to decline in this year’s first quarter and drops were most pronounced at Al Raha Beach and Al Raha Gardens; rents for four-bed villas at Al Raha Gardens also fell by 3.3 per cent.

Manika Dhama, a senior consultant at Cavendish Maxwell, said: “Larger units are facing occupancy pressure from weakened demand as job insecurity continues in the emirate, especially for senior-level executives.”

The company said that 1,200 new homes were completed in investment zones in the first quarter and a further 7,800 units are scheduled for completion by the end of the year.

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