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Affordable real estate, not just in the UAE but also in the UK for UAE investors

The impact of the COVID-19 pandemic is being felt in major industries in the region, including the real estate market, where developers are eyeing a reduction in unit prices by as much as 25%.

The numbers seem to show it despite renewed activity. 

Abu Dhabi Q3

Abu Dhabi’s real estate market saw a rise in transactions over Q3, with market activity continuing to gain pace following the easing of social distancing measures in May, according to the Chestertons’ Observer: Abu Dhabi Market Report Q3 2020.

Although apartment and villa sales prices continued to fall on average, the rate slowed to 0.6% and 0.2%, respectively. On an annual basis, average apartment prices fell by 4.8%, with villas seeing a decline of 4.7%.  

Chris Hobden, Head of Strategic Consultancy, Chestertons MENA, said: “COVID-19’s economic impact will undoubtedly continue to weigh on rental rates short-term, with improvements in residential market performance over 2021 largely contingent on a broader economic recovery.”  

($1= 3.67 dirhams)

Al Ghadeer once again saw the highest rates of decline quarter-on-quarter (q-o-q), falling by 2.1%, from 700 dirhams per sqft to 685 dirhams per sqft, followed by Al Reef which witnessed declines of 1.3% to 740 dirhams per sqft.

For Saadiyat Island, prices returned to their Q1 2020 average of 1,380 dirhams per sqft. 

In the villa market, prices were broadly stable from the previous quarter, with Al Raha Beach seeing the sharpest q-o-q fall of 1.4%, to 1,050 dirhams per sqft.  

From an annual perspective, all locations studied saw annual price drops of below 5%, other than Al Raha, which fell by 9.5%.

Average rental rates continued to fall during Q3 with apartment rates decreasing by 1% and villas by 0.5%. The highest average rental declines for apartments were seen in Muroor Area, where average rents fell by 3.4% q-o-q. 

This was followed by Al Ghadeer, which saw the second-highest quarterly declines of 2.9%. Rents for one-bedroom apartments declined by 5% and two-bedroom units by 3.8%, averaging 38,000 dirhams and 50,000 dirhams per annum, respectively. 

“The flexibility shown by landlords on lease terms has been key to supporting the rental market over Q3. Multiple rental cheques are now widely expected by tenants. Landlords continued to offer promotional rent-free periods and increasingly listed units with the option of shorter lease lengths,” said Hobden.

The rent for an affordable one-bedroom Abu Dhabi flat starts from 32,000 Dirhams and goes up to 85,000 Dirhams for a high-end unit per annum.

Based on the latest third-quarter data by Asteco, Khalifa and MBZ City are the most affordable areas where rent for 1BHK (Bedroom, hall kitchen) ranges between 32,000 Dirhams to 42,000 Dirhams.

Rents in Khalidiya/Bateen are generally priced between 40,000 Dirhams to 45,000 Dirhams a year.

Central Abu Dhabi rentals range between 40,000 Dirhams to 48,000 Dirhams, while rents in Corniche areas are generally priced between 45,000 Dirhams to 50,000 Dirhams.

Landlords in Al Reef area offer one-bedroom between 48,000 Dirhams to 52,000 Dirhams a year.

UK property for the UAE

According to the latest research from Chestertons’ London Residential Property Market Report Autumn 2020, lower property prices, the current stamp duty holiday, and the weak pound are motivating Middle East investors to purchase property in the capital.

Overall, during the period July to September, the London property market gathered considerable momentum, with a 21% increase in the total number of properties available for sale at the end of September compared to the end of June and 30% higher than September 2019. Sales have also increased, a direct result of overseas investors from the Middle East, Hong Kong, China, and France.

This has been buoyed by forecasts of recovery within the UK economy with economic growth in 2021 of 6.4% compared to a projected fall of 10.1% for 2020 as a whole.  

The report revealed the number of sellers opting to reduce the asking price of their properties between July and September rose by 129% compared to the preceding three months, and 76% higher than the same period last year.

Chestertons’ price index showed that average prices for properties in London’s higher value locations, such as Chelsea, Knightsbridge, and Mayfair, were 1.4% lower than at the end of June and were 0.7% lower than in September 2019.

Investors are also able to take advantage of the UK Government stamp duty tax holiday initiative, either as a homeowner, by purchasing second homes or buy-to-let properties.

A homebuyer purchasing their first property up to GBP 500,000 (2.36 million Dirhams) will be exempt from paying any stamp duty tax, resulting in a potential saving of up to GBP 15,000 (70,000 Dirhams). The zero percent rate was only previously applicable to properties valued up to GBP125,000 (587,500 Dirhams), with the rate increasing to 2% up to GBP 250,000 (1.175 million Dirhams) and then 5% up to GBP 925,000 (4.347 million Dirhams).

This is further compounded, particularly for UAE investors pegged to the US dollar, to take advantage of the weak pound, resulting in their UAE dirham earnings going much further.

In the London leasing market, although rents fell by 7.5% from January to September, demand remains incredibly high with Chestertons recording a 170% increase in the number of tenancies it agreed compared to the previous three months and a 42% increase compared to the same period last year.