Vacant homes set to drive down rents in Abu Dhabi

Abu Dhabi is expected to see a relatively modest rent decline in H2 compared to the growth seen from 2013 to 2015.

More housing units are expected to be vacant in Abu Dhabi in Q3. This will have "a more dramatic impact" on residential rental demand, said property advisory company JLL Mena.

There are signs of vacancy rates starting to increase slightly, although many landlords are still able to maintain the same rental levels, according to a JLL Mena report on the Abu Dhabi property market in the second quarter of 2016.

"Job cuts by the oil and gas sector is leading to a decline in population growth," the report said.

The new three per cent municipality fee on Abu Dhabi expat rentals combined with the previous removal of fuel and water subsidies continue to impact cost of living, the consultancy said. Additionally, a reduction in employment allowances and benefits is further contributing to a reduction in disposable incomes, leading to some residents looking to downsize.

David Dudley, international director and head of the Abu Dhabi office at JLL Mena, said: "We have seen a nominal decrease in rents of about two per cent."

He expected vacancy rates to increase during the next quarter, causing further rental declines in the second half of the year.

Average prime rents in Abu Dhabi increased 17 per cent in 2013, 11 per cent in 2014, and five per cent in 2015, representing a 33 per cent aggregate increase from 2013 to 2015, he said. "While we expect rents to decline further from the second half of the year, this is likely to be a relatively modest decline compared to the growth that occurred from 2013 to 2015 - we are not anticipating a major fall," he said.

Only 400 units were delivered during the April-June quarter in the capital, bringing the total residential stock to approximately 246,400 units. Deliveries include Bloom Central Apartments on Airport Road, Nalaya Villas on Reem Island and residential buildings within Danet and Rawdhat.

Approximately 4,000 units are expected to enter the market by the end of 2016, mainly within Reem Island, Rawdhat and Saraya, although based on past trends, a proportion of these could experience delays at handover.  

Average prime rents for two-bedroom apartments decreased nominally by two per cent to reach Dh160,000 per annum due to a slight increase in vacancy rates caused by job cuts and people choosing to downsize.

Average prime sales prices have declined by five per cent to reach approximately Dh15,200 per square metre, affected by the reduction in transaction volumes over the past year.

Dudley added: "Over recent years, prime residential prices went up at 25 per cent per annum which was unsustainable. As the market softened during 2015, prices have remained stable but transaction volumes have dropped significantly, which is starting to put pressure on sales prices."

- haseeb@khaleejtimes.com