ABU DHABI // Landlords in the capital are worsening the housing shortage and keeping rents artificially high by clinging to unrealistic income expectations, according to a property researcher and several estate agents. While some landlords are dropping rent levels in line with market forces, many others are refusing to accept that the new economic climate is driving down prices, said Jessie Downs, the head of research at Landmark Advisory, a division on the Dubai-based property brokerage firm Landmark Properties.
"For the time being the majority of landlords in Abu Dhabi are remaining very stubborn on pricing," Ms Downs said. "It is worsening the housing shortage in the capital, assuming that the population remains stable. "There is more supply coming on and that is having an effect with regards to pricing and there is also the 'Dubai Effect' - that is the fact that many people are moving to Dubai because of the attractive prices and the high quality of the apartments.
"In Abu Dhabi the majority of the stock is quite old and it doesn't necessarily have all the facilities and amenities that many of the developments in Dubai have." According to Ms Downs, the capital's landlords are a "homogeneous group". As a result, landlords' prices move in an apparently co-ordinated way, making them less responsive to market forces than in Dubai. Landlords may also be reluctant to cut rents because it could take several years for them to return to current levels. Conversely, rents that are agreed at a low rate now and are subsequently prevented from rapid increase by the capital's five per cent cap on rent increases, may fall far behind market values when the housing market recovers.
Mark Orman, a property lawyer at Trower & Hamlins, said there were profound differences among new and established landlords over their willingness to negotiate on price. "The newer landlords who have just taken over control of properties at developments like Al Raha Gardens and Sas al Nakheel are much more prepared to negotiate on prices than established landlords who have reaped the rewards of the past few years.
"Prices on the off-island developments are dropping dramatically, week by week. "Landlords who have just completed agreements on these off-island developments are very willing to negotiate low prices because they are just keen to get people in and get these properties working. I think the average rent levels are being heavily influenced by the large reductions being offered by the new landlords." The National made repeated efforts to contact individual landlords but none was available for comment.
Paul Maisfield, the head of professional services division at Asteco, the UAE's largest property services company, said some landlords had been earning "vast amounts" during the property boom and were struggling to come to terms with the new financial climate. He said prices peaked around 12 months ago and, despite new homes becoming available, there was still an undersupply. This was artificially buoying prices, he said.
A three-bedroom villa, which had rented last year for around Dh330,000 (US$90,000) a year, was now likely to be receiving offers of between Dh200,000 and Dh210,000, he said. "There is still a problem of landlords having unrealistic expectations, and that is slowly starting to change. There is still a difficulty with some but gradually the message is getting through and they are becoming more flexible.
"Some of them can be very short-sighted. We have had landlords who insisted on holding out for an extra Dh20,000 even though this could mean the property could be vacant for several months, and they could lose much more in the longer term." However, he added: "There has been a shift in the market and a reversal of the negotiating power, so now it is the tenants who have the stronger bargaining position. It has taken a lot of landlords a long time to get their heads around.
"Previously landlords were able to charge whatever they wanted. Now they can't because people will just move to Dubai." Andrew Chambers, the director of Asteco, added: "There are a few landlords still living in the days when they could command almost whatever price they wanted. There are some who are just holding on and prefer to wait for an offer which matches what they think their properties are worth."
Loshini Lawrence, operations manager at Better Homes in Abu Dhabi, said she found most landlords were resisting efforts to make rents more sensitive to market forces. "We have many cases where landlords will immediately reject rental offers that are lower than the asking price. They turn them down; sometimes they do not respond at all or other times they just take the property off the market." She said landlords who owned the properties without servicing a mortgage often proved the most stubborn and would prefer to hold out for their asking price, ignoring the possibility that the villa would remain empty for several months.
"Abu Dhabi prices are still a bit inflated. Many people prefer to live in Dubai, enjoy the savings and lifestyle and do the commute to Abu Dhabi themselves or get a driver." She estimated rents had dipped by around 12 per cent across the board on the island since April. Rental rates in Dubai have tumbled by up to 41 per cent since the beginning of the year according to figures released last month by Landmark Advisory. The same report revealed that Abu Dhabi's flat rental levels stabilised in the same period, while villa rates dropped by an average of 20 per cent.