Abu Dhabi villa rental prices fall by 20%

A report on the Abu Dhabi real estate market by the Landmark Advisory group has found that while rents stabilised in Q1 2009, after having sky rocketed throughout 2008, there are signs of a marginal decline.

This is attributed in part to competition for tenants from Dubai, where rents have plummeted, as well as to the roll out of some new supply as planned developments come online.

'The faltering demand for villas in Abu Dhabi is likely due to intense competition from Al Ain and Dubai, where housing costs are plunging. For many expats, low rents and lifestyle preferences justify to work in Abu Dhabi but live in Dubai,' the report says.

While apartment rates have, for the most part, held steady across the city, villa rates have seen average declines in annual leases of between 10% to 15%, with four bedroom properties seeing falls of up to 20%.

Rent cuts

The report uses Al Raha Gardens as an example to illustrate its findings. The first phase of townhouses was delivered to the market in Q4 2008, with the expectation that the pent up demand for units would rapidly absorb the new properties. At present, however, occupancy is still relatively low, and the original asked rents have already fallen below initial levels.

According to the report: 'Further rent cuts are likely, due to increased unit supply in the capital and the growing attraction to Dubai's lower prices. However, Abu Dhabi's traditionally robust demand for housing and controlled supply is likely to prevent a significant correction.'

Apartments in what are described as 'prime areas', including the Corniche and Khalidya have not seen noticeable changes in rents, but areas such as Muroor, Salam Street and Hamdan Street have witnessed a softening with owners willing to negotiate on lease agreements.

Good investment fundamentals

Despite the potential further fall in rent prices, according to the report average yields for investors are likely to hold steady at between 6% and 9%. These are currently hovering between 7% and 10%, but even in a scenario that would see rents fall by 25% and sale prices by a further 15%, investors could expect to see higher returns than in a mature market.

The report predicts that the city's population will continue to rise, although at an average of 2% per annum for the next three years, rather than the planned 6% targeted in the Abu Dhabi Plan 2030.

This would still leave the property market with a demand/supply imbalance of 27,900 units. If the city's population were to grow at the planned 6%, the undersupply would reach 45,000 units.

Given this lack of housing the report concludes that the basic fundamentals in the UAE capital's housing market remain strong, offering good prospects for investors who are able to raise the finances to come into the market.

'Demand for high-end properties (i.e. over Dhs1,000 per square foot) is robust and likely to exceed supply for several years to come, with a supply deficit for high-end units likely to reach 10,000 units in 2010. This situation is unlikely to change by 2013, even with the 2% population growth assumption.'