The drop has been seen in areas such as Khalifa City A, Khalifa City B and Mohammed bin Zayed City.
And analysts said rents are likely to decline by at least a further 10 per cent over the next two months due to an over-supply of villas.
Meanwhile, investors have been hit by a change in the law regarding the construction of villas on individual plots of land. Now they can build fewer villas on individual plots of land, which will reduce their returns. Abu Dhabi Municipality recently implemented the regulations, governing construction outside the capital.
“The price of land in new cities such as Khalifa A, Khalifa B and Mohammed bin Zayed has experienced a decline of 40 per cent since the beginning of the year and residential rents are down 30 per cent,” said Talal Khouri, CEO of Abu Dhabi-based Awael Holding.
“There is no doubt that the current financial crisis has taken its toll and local factors such as the shortage of liquidity and an over-supply of units compared with demand have contributed to the decline,” he said.
“Land in these areas that went for Dh7 million prior to the crisis is being sold for Dh4.5m, and rents have dropped from Dh350,000 to Dh250,000 per villa. And rents are expected to drop further, pushing the total fall since the beginning of the year to 50 per cent, especially at Mohammed bin Zayed City,” said Khouri.
“Expatriates are renting these villas and dividing them into two units with three-bedroom each at Dh125,000 per unit. That amount of money is not enough to rent a one-bedroom unit in Abu Dhabi and that is why tenants are moving to these new areas.”
Abdul Rahman Al Shibani, General Manager, Al Ghanem Real Estate, said: “There has been a decline in rents in new areas outside Abu Dhabi. Prices are declining, especially of offices, which have fallen by at least 40 per cent.
“There has been a slowdown since the start of July due to summer holiday. We expect further declines and such falls are positive as they will help to ease the supply shortage inside Abu Dhabi in the long term.”
Sources at real estate offices in Abu Dhabi said the law was hitting the profits of investors in the new cities.
The law reduces the number of villas that may be built on a plot measuring 40,000 square feet to a maximum of four instead of the previous six. And only two villas instead of the previous five may be built on a 22,500 sq ft plot. Investors have complained about the law and have urged the municipality to review it.
Khouri added: “The big losers are the investors who have been making huge profits by building larger numbers of villas in certain areas and renting them to a greater number of families. Reducing the number of villas will harm their investments. Nationals who own land and build on it have not been harmed directly by the law.”
But Khalfan Sultan Al Noaimi, Director, Construction Licences Department, Abu Dhabi Municipality, defended the new rules, saying: “There is no intention whatsoever to change or revoke the law. What is happening is the regulation and organisation of population densities in many areas. This will play a role in easing the load on infrastructure services.”
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