Lower household income, jobs cuts and rising inflation behind recent price drops
Abu Dhabi's residential sales set for further declines, says Core Savills
Abu Dhabi’s residential sales are forecast to soften further over the next six to 12 months but at a slower pace than before as supply continues to grow, according to a report from consultancy Core Savills.
Sales prices could reach a bottom of Dh1150-1250 per square foot and rental prices of Dh70-75 per square foot over the forecast period, said Andrew Ausama, Associate Director at Core Savills.
“Developers/landlords may resist further drops in pricing as these reductions undervalue their portfolio as lower rental yields affect or may breach bank covenants which may require vendors to increase capital security or reduce debt in keeping with banking requirements,” said the report.
Lower household income, job cuts in the private and public sector and rising inflation have contributed to weak demand for residential property sales, which have dropped between 4 and 16 per cent within the last two quarters, falling faster than the yearly forecast of 15 per cent for the whole of 2017, Core Savills said.
“Resistance for further drops may result in developers withholding stock in a healthy adjustment mechanism, already witnessed in Dubai in the past 5 years. This would, in turn, cause a prolonged period of lower volumes and flattened sales prices. We expect this plateau to start by end of 2017 and last for a period of 12-18 months,” Core Savills said in the report
The consultany's findings are in line with other property experts.
Abu Dhabi rents are set to drop further next year after declining 11 per cent year-on-year in the second quarter, with upscale areas under performing affordable parts of the emirate, broker CBRE Middle East said earlier this month.
Average rentals for upscale properties dipped 12 per cent, while more affordable units decreased between 6 and 10 per cent, CBRE said.
Employment uncertainty, the rising cost of living and the new supply of property are depressing rents, which have dropped 3 per cent quarter-on-quarter.
Sales price fell 4 per cent in the second quarter and are set for further declines with the delivery of new units over the next 12 months and as investors wait for prices to soften further.