Falling home prices in Abu Dhabi are making the capital more attractive to Dubai commuters.
Prices are down 45 per cent from the peak in 2008, standing at an average of Dh11,800 per square metre compared with Dh21,500 per sq metre three years ago, according to a report released yesterday by Jones Lang LaSalle, a property consultancy.
More than 14,000 apartments and villas are scheduled for completion in the second half of the year, adding to the increasing competition for buyers, Jones Lang LaSalle reported.
Abu Dhabi rental rates are already growing more competitive with Dubai's, "drawing commuters back from Dubai and lowering employment costs for companies", the consultancy noted.
At the same time, people who bought off-plan are moving to sell their homes now that the projects are finishing. There has been an increase in recent weeks in the number of listings for homes on Reem Island and Raha Beach, agents say.
Some owners are selling at a loss rather than making the final payment to developers, said Ahmed Nawab, the chief executive of Trust City Real Estate, an Abu Dhabi property company.
"There are people in the market who need the liquidity, who need the cash," he said. Apartments coming on to the secondary market are averaging 30 per cent less than the original purchase price from the developer, Cluttons, a property agency, said in its second-quarter report.
Sales are hindered by the lack of available financing "as banks within the UAE remain committed to 'repairing' their existing balance sheets rather than adding to them", Cluttons said.
"The release of stock on Al Reem Island will certainly affect stock values elsewhere in Abu Dhabi and we foresee continuing price reductions for the foreseeable future," Cluttons reported.
RAK Properties started handing over apartments in the 43-storey RAK Tower on Reem Island on June 27.
The number of transactions in the second quarter was "minimal" despite the growing supply of available homes, said David Dudley, the head of Jones Lang LaSalle's Abu Dhabi office.
But he believes the worst of the price drops may be over. Prices remained stable in the second quarter despite the shifts in the market, Jones Lang LaSalle reported.
"Prices fell very, very rapidly after the peak," Mr Dudley said. "That was really all about the end of the speculation sales market."
Prices propped up by that market have now fallen to more acceptable levels.
The market is fundamentally different from three years ago, Mr Dudley said.
"The motivation of buyers is different," he said. "It's more about buyers as end users, as well as a few investors."
Off-plan sales have dried up, leaving the focus on homes already available.
"Demand is where the units are already completed or near completion," Mr Dudley said.
High-quality apartments and villas represent only 8 per cent of the stock.
The market is expected to be helped by the recent decision to extend visas for foreign property buyers from six months to three years. But price recovery is "dependent upon initiatives that retain and grow jobs, especially for the expatriate population in Abu Dhabi", the Jones Lang LaSalle report said.
"Realistically, new demand will be limited in the next 12 months, more focused on existing occupiers," Mr Dudley said.
More GCC buyers are starting to enter the market, Mr Nawab said.
"People are looking to Abu Dhabi as a safe haven," he said. "We're seeing a lot of Egyptians coming in looking for an investment."