Abu Dhabi rents continue to fall as capital values drop

A report by UAE-based property services company Asteco has found that, although some property owners have been reluctant to drop asking prices, many - especially expatriate investors - have begun accepting lower rental contracts.

The report finds that expatriate landlords are likely to ask for up to 20% less than their counterparts.

The drop in rents in the UAE capital coincides with a number of new units coming onto the market, either through tenants vacating existing properties, or new developments coming online, although demand in the city still outpaces supply.

'Currently, the Abu Dhabi residential market has insufficient quality apartments to match market demand,' says the report. 'The majority of tenants who are currently paying high rental rates will seek better value for money and possibly look to rent superior quality apartments on Al Reem and Al Raha.'

The first new units in these freehold zones are expected to come online at the end of 2009, with an extra 5,000 apartments, and up to 2,000 villas, due by the beginning of 2010. In addition, listings for apartments in the Corniche, Hamdan Street, Passport Road and Muroor districts have increased, which the report attributes to tenants leaving the country.

Apartment prices

Rents in Khalidiyah and the Corniche areas still command the highest returns, with comparable pricing rates.

Three bedroom apartments in each average Dhs350,000, with two beds fetching Dhs250,00 and one bed properties returning Dhs150,000.

Similar sized units in Salam and Khalifa Street fetch approximately Dhs300,00, Dhs240,000 and Dhs165,000 respectively.

The highest drops in returns have occurred in The Tourist Club Area and Passport Road, which the report attributes to tenant migration, with companies moving employees to Dubai or to 'better offerings'.

Three bedroom flats in these areas now fetch approximately Dhs280,000.

Villa rental rates

Villas situated on Abu Dhabi island have, in the last quarter, witnessed lower asking rents with falls of approximately 10%, a similar trend to that witnessed for properties off the main island, which have gone down by 20% since January.

Villas in Al Raha Gardens now fetch Dhs250,000 for a four bedroom property, this is down from highs of Dhs330,000. On the main island a four bedroom house can fetch an average of Dhs385,000.

Investor confidence

Despite the fall in rental returns, the city is still seen as having the best potential for investors in the regional property sector, as the drop in leasing rates is matched by the lowered purchase prices.

A survey by Jones Lang Lasalle (JLL) of 200 industry investors and developers places Abu Dhabi, alongside Saudi Arabia, as the investment 'hotspots' for the next few years. Respondents pointed to Abu Dhabi as the market most likely to perform best over the next 12 to 24 months. This was put down to balanced growth, a relative undersupply of units and oil wealth.

'We see many positives in the [JLL] report,' said Ian Ohan, the group's head of Investment Transactions. 'That investors are returning to investment fundamentals such as focusing on yield is a welcome finding, as is the suggestion that there is, at last, an end in sight to the current turmoil.'