Capital's rental and sales segment plummets 8%

Supply of new properties in Abu Dhabi will likely push down sale prices and rents in the capital, a report said.

The Landmark Advisory second quarter report, titled 'Affordability is the key to bolstering corporate interest and creating', said that after some growth during the third and fourth quarters of last year, especially in the apartment segment, average asking prices in Abu Dhabi fell up to eight per cent in the first quarter of 2010.

This is a positive response from the market because prices are starting to become more consistent with the expectations of buyers.

Landmark said transactions will increase during the second and third quarters of 2010 for developments being handed over within the next six to nine months.

Average apartment rents in Abu Dhabi fell 10 to 15 per cent in the fourth quarter of 2009 and continued to decline further by five to 10 per cent in the first quarter of 2010. Similarly, villa rents fell five per cent on average in the first quarter following average declines of 10 to 15 per cent in the fourth quarter of 2009.

The report said that with respect to the sales market in Abu Dhabi, actual price declines experienced within developments are linked to the payment plan structure.

"In Marina Square, for example, payment plans are back-loaded with up to 70 per cent due near completion, which is causing prices to approach the Dh1,000 per square foot mark.

"While we expect some marginal price decline as we approach handover of developments, these recent price declines are already closing the gap between seller and buyer expectations, which will continue to attract investment, and result in more transactions," said Jesse Downs, Director of Research and Advisory Services, Landmark Advisory.

"In Abu Dhabi, much of the new supply expected for delivery this year will rejuvenate a market that has a low average standard of quality for existing housing supply. About 5,000 of these residential units will be delivered in the Investments Zones, like Marina Square, and we expect most of the hand-overs to be concentrated in the third quarter of 2010, which will result in a few key trends."

Turning to leasing trends in Abu Dhabi and Dubai, rents continue to decline in both cities.

The report said that rents will decline up to 20 per cent by the end of 2010 with the sharpest declines occurring in the second half of 2010 following the handover of large portions of supply in the investment zones.

"Once these units are available in the leasing market and rents decline, relocation within the city will increase, and we predict that middle-high and high-income commuters will gradually start relocating back to the capital," said Downs.

Landmark said Abu Dhabi and Dubai's rental markets are interlinked through commuter patterns.

"Dubai rents are declining and will continue to decline due to increasing supply within Dubai and sluggish job growth. In 2009, rental demand in Dubai was driven by relocation, with Abu Dhabi commuters comprising a significant portion of that demand. As commuters and new residents working in Abu Dhabi move into the capital's new developments, this will put additional downward pressure on residential rents in Dubai."

Turning to the Dubai sales market, the report said that residential and office prices experienced further declines in the first quarter of 2010 with residential sale volumes decreasing due to the widespread anticipation of further price declines by potential investors. Increasing liquidity constraints continue to restrict mortgage availability and affordability; this limits owner-occupier demand and leaves investor sentiment steering demand.

"The silver lining is the recent increase in commercial leasing demand stemming from corporates looking to relocate or establish operations in Dubai. Reduced office rents and a general reduction in costs associated with establishing and operating a business in Dubai is generating relocation interest from within Dubai, from other emirates, and also from the broader GCC. In addition to affordability, regional companies are attracted to the high quality of infrastructure in Dubai and the improved capacity to attract and retain talent."

"In Dubai, this is the trend to watch for forecasting demand for both the office and residential sector. Increased demand from corporates looking to relocate to or expand within Dubai will lead to job growth with expat job growth in particular set to aid demand," said Downs.

Rentals fall in Northern Emirates

Rentals in Northern Emirates continue to fall with Umm Al Quwain and Fujairah recording the smallest decline of four per cent on average, a recent report said.

The Asteco report on the property market in the Northern Emirates for the first quarter of 2010 said that Ajman and Ras Al Khaimah registered the largest decrease with rental rates dropping by around seven per cent. The largest per bedroom type was recorded in Sharjah with one-bedroom apartments contracting by nine per cent.

Studios in the Northern Emirates range from Dh14,000 per annum to Dh24,000 per annum.

Three-bedroom apartments range from Dh35,000 per annum to Dh62,000 per annum.

Asteco said that tenants in the Northern Emirates are continuing to move from one emirate to another tapping better accommodation in order to be closer to their workplace. "It is imperative for landlords to offer tenants attractive incentives to ensure long-term tenancy agreements," said Elaine Jones, CEO, Asteco Property Management.

Sharjah

The Sharjah residential market continues to experience a gradual drop in rental rates with a significant number of tenants relocating closer to their workplace. "As rents continue to fall in certain areas of Dubai, the prospect of a reduction in travelling time becomes more appealing, the report said.

Asteco said this decline in rental rates is exacerbated by the number of vacant units available in the market, making properties more competitive, combined with a lack of quality accommodation, despite the fact that a number of new towers have been constructed over the past few years.

Ajman

Asteco said Ajman is in a similar situation as Sharjah with a significant number of people relocating from one emirate to another in order to be closer to their workplace.

"The concentration of unoccupied properties is mainly within the City Centre, with a smaller percentage of vacancies close to Ajman Free Zone and the surrounding areas. Those properties on the Corniche or with a sea view, continue to attract interest from tenants working in Ajman," said Jones.

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