THE ABU DHABI REAL ESTATE MARKET IN 2016

The property market in Abu Dhabi is showing some very interesting cracks at the moment. Rents and sale prices are decreasing in some parts but holding up in others. General sentiment in the market, particularly on the sales side is depressed with lots of people looking but bid and offer prices still relatively dislocated. At the time of writing (August 2016), there is the usual high level of rental transactions typical of the time of year as families try to get in before school starts so there is plenty of dust in the air. We should get a better picture in October when the market has settled and we can see what occupancy levels are like. However in the meantime here is what is going on in Abu Dhabi real estate.

Rents and to a certain extent sales are both governed by the simple laws of supply and demand. Currently, demand is suppressed in Abu Dhabi due to the well-publicized reductions in headcount across government sectors and in particular oil. Oil is very slow as you would expect but the defense and healthcare sectors are very positive. We are not expecting a net decrease in the population of Abu Dhabi in 2016, as since 1995 when SCAD began keeping records the population has never decreased. In fact from 2005 to 2012 average annual growth rate was 7.9% per year. Contrast that with very low building deliveries in 2016 (the consultancy JLL predicts an addition of only 2% to supply) and the outlook isn’t too bleak after all.

There is no getting away from it, though, leasing and rental rates across the city are down, with the largest drops coming in the higher end properties such as luxury villas. The well-to-do residential communities of Saadiyat Island, The Hills and Golf Gardens, have been hard hit but more economical villas such as those in Raha Gardens have not been as badly affected. Apartments have held up better than villas generally especially in the suburban areas such as Saadiyat Island, Raha Beach and al Reef.

Two areas, in particular, have been the hardest hit and for different reasons. The Corniche, traditionally heavily populated by the oil industry due to its proximity to the Sheikh Khalifa Energy Complex, has seen heavy outflow and inventories are pretty fat here as a result. The other area badly hit has been Reem Island, because most of the inventory which has come on in 2016 has been delivered here. The release of Hydra Avenue, phase two of the Gate Towers, the Wave and now the Najmat Towers has flooded the market at a weak time and depressed rents, and as a result sale prices.

Rents are holding up pretty much everywhere else but there have been price reductions to varying degrees across the Emirate. The most resilient areas have been Raha Beach and to an extent al Reef, both traditionally buoyed by one of the Emirates biggest Employers, Etihad Airways.

The sales market tends to match the rental market in a very similar way but is also affected by “sentiment”. A purchase is a long term investment so people’s belief in how well the market will do over the next few years affects sales prices more than rentals, as lessors are only interested in the next year.

The major investment areas in Abu Dhabi (where expats can buy) are Reem Island, Saadiyat, Raha Beach and al Reef, all of which we have spoken about to some degree already. In Al Reef prices have held up well due to low availability there and the generally solid returns, but transactions have slowed. Buyers are looking for bargains but sellers are getting good returns so are uninterested in selling at nine or ten percent gross yield. The exact same thing is happening in Raha beach, buyers are reflecting the mood of the market by making low offers which seller simply don’t need to take.

Saadiyat Island is an interesting case in and of itself. Not an area popular with investors due to low yields it is traditionally purchased by end users or for capital appreciation. The wealthy end users have for the most part retained their jobs and are still here, and the depressed market means buyers are still waiting for the bottom to buy and take advantage of the upswing. The low amounts of inventory here also make matching buyers and seller an issue.

Reem Island is the real hub of property transactions in Abu Dhabi. It contains a healthy mix of investors and end users as well as a broad spectrum of cheaper and more expensive units. Buyers are still looking to pick up market value acquisitions here and there are sellers looking to either take profits if they bought cheap or to cash out of the market if they are heading home, meaning that bit and offer prices are easier to match here than anywhere else in the City.

The market has had a tough year in 2016 and the future remains unclear. It is hoped that the headcount reductions by the government have already happened and we will start to build population at a faster pace through the third quarter and on to next year, to take up the slack in inventory and give the market a much-needed boost.