Fall in Abu Dhabi villa prices slows

Decline in villa prices in Abu Dhabi has slowed in the first quarter 2010, as prices fell five per cent in comparison to the fourth quarter of 2009, real estate consultants said.

Prices fell 15 per cent in the fourth quarter 2009 compared to the third quarter 2009, they added.

Mohanad Alwadiya, Managing Director, Harbor Real Estate, said: "Although villa prices in Abu Dhabi have come down on an average of five per cent in the first quarter of 2010 compared to the fourth quarter of 2009, the real estate sector continues to attract more tenants than buyers."

Paul Maisfield, General Manager and Head of Professional Services, Asteco, Abu Dhabi, said: "Abu Dhabi is still very much a rental market. Like the previous quarter there have been some rental reductions in the villa market and this has been particularly pronounced at the upper-end of the market.

"With respect to hand-over of Golf Gardens, our research shows that about 70 per cent of these villas are being made available for rent, with the remaining 30 per cent occupied by property owners. Moreover, approximately half the villas that have been rented out to date are company contracts."

According to Asteco, close to 3,800 villas are specifically being developed for the leasing market, which are due for handover in 2010.

"Majority of that will consist of low-to-mid-quality stock in Khalifa City A and B, and Mohammed Bin Zayed City. We expect many of these to be sub-divided into smaller units, making it difficult to predict how many residential units will actually come onto the market in those areas," said Maisfield.

"A large proportion of villas at Golf Gardens have come onto the rental market. The majority of tenants in this development are western expatriates."

Alwadiya said: "We are noticing that majority of villa projects are being offered for lease-purposes with the estimated ratio reading 70 per cent for lease-purposes and 30 per cent for sale."

He said the overall appetite for buying properties has dropped. "Although we have noticed an improvement in the mortgage offers during 2010, the end-user funding options are still not attractive enough."

Loshini Lawrence, Operations Manager, Better Homes, Abu Dhabi, said: "There is a high demand for rentals at the moment. Given the current sale prices, high bank interest rates and lack of ready to move in freehold properties, rentals still tend to be on the increase."

However, once the market receives more good quality and location inventory and banks start to lend more aggressively, the market will experience a slight change in terms of the buyer interest, she said. "Selling prices will always play a key role in market dynamic."

According to Asteco, "On an average, allowances tend to be in the region of Dh300,000 per annum to Dh350,000 per annum for senior management positions. Consequently, five-bedroom villas quoting above Dh400,000 per annum are struggling to let and prices have fallen to more realistic levels, with some five-bedroom villas now available for less than Dh330,000 per annum."

According to Asteco, the handover of the first phase of Al Reef villas revealed that new landlords have mortgage commitments and that they are looking to secure tenants early in order to avoid vacant periods. "As more phases are handed over in the next few months, rents in this development are likely to come under increasing pressure to drop further," said Maisfield.

Harbor Real Estate said that current rentals for three-bedroom villas average Dh255,000 per annum, for four-bedrooms Dh280,000 per annum and five-bedrooms the average is Dh385,000 annually. "These rental prices are down by approximately 25 per cent from the same time last year."

According to Better Homes, at Golf Gardens, villas can be leased from Dh310,000 per annum onwards, at Al Reef Villas, two-bedroom villas rent for Dh110,000 per annum. "This is approximately 15 per cent to 20 per cent down for the corresponding period last year."

Asteco estimates around 5,500 new villas will be delivered to the Abu Dhabi real estate market during 2010. "Compared to some villa developments in Dubai, none of these developments can be considered high-end, except Hills Villas in Officer's City. Areas such as Khalifa A and Mohammed Bin Zayed also have about 2,000 villas each in various construction stages. Most of these villas are owned by UAE nationals and held for investment purposes. The villas, which will be owner-occupied by UAE nationals, tend to be of high quality," said Maisfield.

Alwadiya also said around 5,500 villa units will be supplied in 2010 with large numbers coming from Golf Gardens, Al Raha Beach and Al Reef Villas.

Asteco said the firm has not seen any significant fluctuation in completed villa prices over the past three months. "From an investment perspective, based on current prices, large villa developments of Al Raha Gardens, Golf Gardens and Al Reef are, on average, all achieving gross yields of about nine to 10 per cent," said Maisfield.

Lawrence, however, said that prices were on the decline.

Alwadiya said that in the fourth quarter of 2009, villa prices continued to drop by an average of 10 per cent in sale prices and up to 15 per cent in rental prices. He added that prices have fallen on an average of 15 per cent in the last quarter compared to the previous quarter. "This provided evidence that escaping the effects of the global economic crisis is impossible for any economy, no matter how strong its fundamentals."

"In the first and second quarter of 2010, the decrease in villa prices in Abu Dhabi started to soften. According to our records, the average decrease in villa prices in Abu Dhabi is at five per cent for sale prices and eight per cent for rental prices in the second quarter of 2010. On the main island, west and east districts are demanding a steep premium of 27 per cent for villas compared with similar sized units in the off-island districts," said Alwadiya.

"Moving forward in 2010, as the UAE continues to emerge from the economic crisis, and as lending options become more available and affordable, we expect the demand for villas to start picking up again and this will help the prices stabilise after reaching more acceptable levels."

Meanwhile, real estate agents said Golf Gardens and Al Raha Beach gardens were by far the most expensive villa communities in Abu Dhabi. "Golf Gardens is among the most expensive villa community in Abu Dhabi, although rents have fallen over the last one year by about 25 per cent as landlords' expectations have fallen to meet the market."

According to Harbor, the most expensive villas are the Al Raha Beach community and the Golf Gardens community. "On the other hand, the highest priced villas are still within the Nurai Island development, with some of the luxury villas being currently listed at Dh49 million. Also, some of the luxury villas at Saadiat Beach are being listed at prices ranging from Dh8m up to Dh30m," said Alwadiya.

Better Homes said that currently, the most expensive rental community in Abu Dhabi is Marina Royal with pricing ranging around Dh950,000 per annum.

According to Asteco, villa rentals in the second quarter of 2008 in Abu Dhabi were on an average around Dh200,000 per annum for a three-bedroom, Dh245,000 yearly for a four-bedroom and Dh330,000 for a five-bedroom. "Prices reached a peak in the fourth quarter of 2008 with average rates as high as Dh380,000, Dh450,000 and Dh530,000 respectively for three-to-four-to-five-bedroom villas. Following this peak, prices have, on an average, fallen by around 40 per cent (fourth quarter 2008 to fourth quarter 2009).

"There are only two villa developments in Abu Dhabi, Al Reef Villas and Hydra Village, which are available for investments by expatriates.

"As both are mid-end developments, they are affordable to a larger buyer base that include western, Arab and Asian expatriates as well as UAE nationals.

"The other freehold villa developments were available for UAE nationals who predominantly bought for investment purposes to rent to expatriates."

Meanwhile, Abu Dhabi continues to attract a larger percentage of villa buyers than apartment buyers. "Depending on the client, most expats purchase apartments or duplex within a building or villas within a self-contained community with a small garden. There is still an interest in well-designed and priced apartments with quality finishes and sea views," said Lawrence.

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