Abu Dhabi landlords expecting stimulus boost will need patience
Residential prices likely to continue falling for 12 months, retail remains under pressure, says JLL
Landlords and real estate investors expecting the recently-announced stimulus package by Abu Dhabi's crown prince to spark a revival in the city's residential market will have to be patient, according to experts.
Real estate consultancy JLL said in its Q2 2018 Abu Dhabi market update that some of the biggest benefits the real estate sector could see as a result of the stimulus package are likely to include reduced costs for developers, the promotion of partnerships between public and private entities, and the provision of dual licences, allowing companies operating in free zones across the capital of the United Arab Emirates to compete for government contracts.
The report said that changes to visa rules and a decision to allow foreign firms 100 percent ownership of businesses were expected to have "a positive effect on the residential market, providing expats with more security over their rights to remain in the UAE".
However, it also warned that a quick turnaround for a market that has been in a tailspin since 2015 was unlikely. In the residential market, for instance, sale prices for apartments continued to decline by 9 percent year-on-year, with rents falling by the same amount. Villa prices dropped by 19 percent year-on-year, as rents fell by 11 percent, and the 12-month outlook for both categories forecasts further declines.
"The market has continued to soften over the quarter and the government has recognised the need to stimulate... by taking some of these long-term decisions," Craig Plumb, head of research at JLL, told Zawya in a telephone interview on Monday.
Last month, Abu Dhabi’s Crown Prince Sheikh Mohammed Bin Zayed Al Nahyan announced that a 50 billion UAE dirham ($13.6bn), three-year stimulus package would be launched, instructing the executive committee of the emirate’s Executive Council to draw up a plan of how the funds should be allocated within 90 days.
"The employment and overall investment by companies in Abu Dhabi has fallen over the last year-to-two years. We've seen a number of consolidations among private sector as well as government," Plumb said, adding that when combined with lower levels of infrastructure investment, this has led to fewer jobs and lower demand for homes and office space.
Rents for Grade A office space have declined by 3.5 percent year-on-year and are predicted to fall further. Vacancy rates for office space has increased to 23 percent and is predicted to rise.
Plumb said that developers are likely to benefit from lower costs as a result of government reducing fees and charges for some projects. He also said there had been discussions - but no details released yet - around lowering land costs, which could also provide a fillip to the real estate market.
Kamraan Khan, a valuations associate at real estate consultancy Cavendish Maxwell, agreed that it was "too early" to judge what impact changes such as lowering municipality fees and offering longer visas to certain categories of individuals would have on the property market.
"We anticipate that the results will manifest themselves, at the earliest, toward the end of this year," he told Zawya in an emailed response to questions on Monday.
Cavendish Maxwell also released its Q2 Abu Dhabi report on Monday, which stated that apartment prices were continuing to fall in the city as buyers had "shown a preference for the mid-level price segment", as developers launch new off-plan schemes with starting prices of 500,000 UAE dirhams ($136,147) and below.
Khan said that about 10,000 units are due to be added to Abu Dhabi's freehold areas this year. This could prove to be a further drag on demand given that layoffs have meant there are completed units in the emirate that remain empty.
"There is limited data on current occupancy levels, and these vary from building to building as well as by location. However, from our observations these have in the main reduced, due in part to supply as well as a combination of relocation as a result of competitive pricing and reduced housing packages," Khan said.
Khan added that a further 8,000 units were due to complete next year, but that supply numbers were subject to change if developers delay completion in a bid to regulate supply levels.
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