Abu Dhabi freehold properties falling back to original prices

According to Landmark Advisory, average prices for Abu Dhabi's ambitious master developments have dropped 15%-25% since peaking in Q308 and are approaching original prices in the secondary market. For properties being delivered later than 2011, average prices are likely to fall up to 10% below original prices by Q209.

"Freehold and leasehold prices spiked after CityScape Abu Dhabi in May 2008, and despite solid demand fundamentals, the market could not sustain such high prices in the short to medium term. Now we're in a state of transactional gridlock in a market wanting transparency. Going forward developers and investors need the latest research analysis based on solid supply and demand fundamental to make informed decisions."

said Jesse Downs, Head of Research at Landmark Advisory.

"Investors and speculators saw Abu Dhabi as the "next big thing" after Dubai, but by the financial crisis had already hit the UAE. Launch prices were benchmarked against Dubai's already inflated property values, so there was little room for appreciation even before liquidity dried up," added Downs.

Understanding the current state of Abu Dhabi's freehold/leasehold market requires an evaluation of buyer and seller motivations. "Sellers are motivated by original prices, while buyers focus on absolute prices. So buyers are unwilling to buy at current prices, but sellers are reluctant to sell below what they paid. Due to this incompatibility, sales have ground to a halt. Developers are now facing the prospect of renegotiating payments to prevent defaults and preserving enough cash flow to continue construction," explained Downs.

Turning to Abu Dhabi's rental market, Landmark Advisory revealed that between Q407 and Q408, average villa and apartment rents grew by 35% and 80%, respectively. Rent growth leveled out in Q408 and has been relatively stable since, rising marginally in January and February. "After spiking, average rents appear to have hit a ceiling due to supply-side substitutions. Residents are opting for housing alternatives like accommodation-sharing, serviced or hotel apartments, and auxiliary markets in Dubai and Al Ain," concluded Downs.