Residential rents in Abu Dhabi are not likely to ease any time this year due to an existing demand-supply mismatch, but renters can still lease one- to two-bed units in Khalifa City and Mohammed bin Zayed City for Dh55,000 to Dh80,000 per annum (pa), latest reports by real estate consultancies reveal.
Rental have increased on an average of four per cent in the first three months of 2015 and are expected to rise further this year due to drop in new housing supply in the capital, MPM Properties, the real estate advisory subsidiary of Abu Dhabi Islamic Bank, said in a report released on Tuesday, to coincide with the opening of Cityscape Abu Dhabi 2015.
Only 750 new homes were delivered in the first quarter, the company said, stating it expected completion of 5,800 unit this year, which represents the lowest level of new residential supply for five years.
A year-on-year comparison shows average rents were seven per cent higher in the first quarter.
Sales prices declined four per cent quarter on quarter, and are down 10 to 13 per cent from their peak in the third quarter of 2014, with the decline attributed largely to a weakening investor sentiment in the region due to a sharp drop in oil prices.
“What we are witnessing at the moment is that the lower oil price has temporarily dampened sentiment, but the market fundamentals remain strong,” said Paul Maisfield, CEO, MPM Properties, said in the report.
“Rents have risen because of lower supply, and pent-up demand for high quality housing stock in the city means that sales are still healthy. In addition, gross residential yields are now at 6 to 7 per cent, which is attractive to investors.”
MPM manages over 23,500 units in the capital.
Rent for 2-bed units up 4%
In its first quarter 2015 report, JLL, a real estate consultancy, said rents for prime two-bedroom apartments continued to increase given the limited supply in the market as rates rose four per cent to reach Dh163,000 per annum (pa). Sales prices for residential units (apartments and villas), however, remained stable at Dh16,000 per square metres.
Nearly 5,000 residential units are expected to enter the market by year-end with no major handover reported in the first three months of the year.
“We expect there to be a reduction in government spending this year due to the recent decline in oil prices, which will slow down the annual demand growth rate,” said David Dudley, Regional Director and Head of Abu Dhabi office, JLL MENA.
“Residential demand growth will continue to be sustained from projects commenced while oil prices were high. Given a current shortage of quality housing, we expect rental growth to continue, but at single-digit growth rates, rather than the double-digit rates we saw from 2013 to 2014.”
Average prime residential prices remained flat since Q4 2014 after two years of 25 per cent annual growth, primarily due to the recent decline in oil prices, equities markets and investor sentiment, the report said.
Sale prices stabilising
As per real estate consultancy Asteco’s Q1 2015 report, the capital registered a modest rental rate increase for specific projects in key locations, with sales prices stabilising post a growth spurt in 2014.
Demand for high-end developments in investment zones including Saadiyat Island and Al Raha Beach remained positive, with Reem Island reporting strong sales. “Popular” projects, the report said, registered a three per cent increase in rental rates.
“Prime and high-end residential units continue to dominate demand and command higher rental rates compared with other market locations, especially for one and two-bedroom apartments,” said Jerry Oates, General Manager, Asteco Abu Dhabi, adding, they were also witnessing a significant increase in demand for affordable units this year.
Comparing prime investment areas with lower-end Abu Dhabi island apartments, one and two-bedroom units in Shams Abu Dhabi are renting for up to Dh120,000 pa and Dh180,000 pa, respectively, compared with Dh70,000 pa and Dh90,000 pa for apartments in Central Abu Dhabi.
Off-island, the price drops higher with one and two-bedroom homes in Khalifa and MBZ City leasing for Dh55,000 pa and Dh80,000 pa, respectively.
On the villa front, a four-bedroom unit in Al Reef is currently renting for Dh155,000 pa annum with a three-bedroom in Hydra Village leasing for around Dh95,000 pa. However, a luxury three-bedroom property on Saadiyat Island is renting for up to Dh300,000 pa, the report revealed.
Experts are predicting softening in Dubai’s residential rental market, but they previously stated that Abu Dhabi market follows the trend with a time lag of 12 to 18 months. However, a World Bank’s report said the UAE will see a decline in cost of living in 2015 with inflation projected to more than halve from 2.1 per cent in 2014 to nearly one per cent this year.