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Cityscape Abu Dhabi: Buyers never had it better

dubai - Developers go all out to woo investors at Cityscape Global Abu Dhabi

The 100+ developers participating in the 12th edition of Cityscape Abu Dhabi are offering various incentives for buyers to purchase property at the event. This is in the form of slightly discounted rates, post-handover payment plans and lower upfront payment offers. With sales being permitted on the show floor, developers hope this will help reinvigorate the Abu Dhabi property market which continues to see price and rent declines owing to increasing supply and a tough economic environment.

"As the market is currently buyer-friendly, we can expect lots of incentives and discounts to be offered. In addition to lower prices per sq ft, 2 other major forms of incentives are likely. Firstly, post handover payment terms - with smaller down payments required to secure off-plan units. And secondly, developers are likely to pay purchasers' legal and transaction costs," says Peter Stebbings, head of JLL Abu Dhabi office.

The Abu Dhabi market typically lags Dubai by 12 to 18 months. With the market still declining in Dubai, price and rent declines are likely to continue in Abu Dhabi for the rest of 2018 and probably into 2019.

Abu Dhabi's investment zones have seen marginal price declines in Q1 2018. There has been downward pressure on sales prices due to increasing supply, uncertainty regarding the employment market and readjusted housing allowances. However, stabilising oil prices and increasing government expenditure could improve market sentiment going forward.

"The Abu Dhabi residential market is still softening - with prices falling 14 per cent YoY and rents down by 9 per cent. Further falls in prices and rentals are likely to continue over the rest of 2018," adds Stebbings.

Rental market
Apartment and villa/townhouse rents have continued to decline in Q1 2018, albeit at a slower pace than 2017. According to the Property Monitor Index, villa/townhouse rents in Abu Dhabi investment zones have registered 12-month declines of 3.8 per cent on average.

"Larger unit sizes continue to be pressured by rising vacancy levels. Tenants are choosing to move out of outlying areas of Abu Dhabi to central locations on the main island, taking advantage of the declining rents, the incentives offered by landlords and shorter commute time to key office locations. Tenants are also in a better position to negotiate terms with existing landlords," explains Manika Dhama, senior consultant at Cavendish Maxwell.

Leasing incentives are in abundance in Abu Dhabi, ranging from monthly cheques by some developers (Abu Dhabi was a 1-cheque emirate for a long time), no agency fee payable by tenants to rent-free periods. Individual landlords are very responsive to these incentives to ensure occupancy is retained and an income is generated from their investment.

Sales performance
Most sales activity in Abu Dhabi is concentrated in the off-plan segment where attractive deals are to be found. The secondary sales market continues to be muted as potential buyers remain on the sidelines waiting for the market to fall further.

"Existing owners who bought properties at the peak are becoming reluctant landlords, looking to rent to an already limited tenant pool, rather than selling much below the acquisition prices. This gap in unrealised expectation vs market reality is causing the secondary sales market to see long transaction timelines and fewer concluded transactions," observes David Godchaux, Group CEO of Core Savills.

According to Matthew Green, head of research and consulting, CBRE: "Secondary market transactions in particular have suffered from reduced investor sentiment. However, despite a challenging backdrop, Abu Dhabi's residential sector continues to witness an active off-plan sales market, led by a series of launches from Aldar. In 2017, Aldar is estimated to have launched close to 1,900 homes, of which 83 per cent of the units are understood to have been sold during the course of the year."

The choice of investment areas for expats is fewer in Abu Dhabi than in Dubai. "The market is split into 2 segments, low-end investor [studios, 1-beds] and high-level properties for end-users. The mid-range market is slow while buyers adopt a sit-and-wait policy," says Edward Carnegy, director - head of Abu Dhabi office, Cluttons.

However, the geographical waterfront limitations of the core islands of Saadiyat, Reem as well as Yas will potentially make these districts restricted for future growth, curtailing oversupply concerns, reckons Godchaux.

Although incentives abound in Abu Dhabi's residential market, whether or not these plans actually help ease the financial pressures of purchasing a property, particularly those faced by low-mid income buyers, is not known. Most of these payment plans still favour investors as affordability issues persist for end-user occupiers. Expatriate movement to home ownership remains limited due to the uncertainty surrounding the employment market and flexibility offered by the softened and attractive rental market.

"We foresee a systemic risk building up by these ongoing payment plans, which allows buyers to pay a large share of the cost after completion. This makes acquisitions look very easy today, but might burden households, particularly in the low-mid income segment that have to continue paying rent on their current accommodation in addition to saving for their final payments. Buyers, therefore, need to assess these incentives very carefully in order to ensure they are getting a good deal," cautions Godchaux.

- deepthi@khaleejtimes.com