OBSERVER Abu Dhabi Market Report Q2 / 2019 Services Report Highlights Valuations Mortgage and Secured Lending Sales Prices Market Outlook Portfolio Valuations The downward price corrections witnessed in Q1 2019, have Whilst short term price and rental declines are unavoidable due continued in Q2, with average sales prices for apartments and to restrained economic conditions and oversupply issues, there Advisory and Research villas down 5% and 3% respectively from the previous quarter. is a more positive outlook for the Capital’s residential real estate Financial Feasibilities That said, the Abu Dhabi Government has recently changed its market in the medium to long term. The new freehold law is real estate laws to allow foreign nationals to own freehold property expected to significantly bolster foreign direct investment and Highest and Best Use Studies in designated investment zones; a privilege previously enjoyed coupled with initiatives such as the 10 year residency visa, people Market Research only by UAE and Gulf Cooperation Council (GCC) nationals. This will have the ability to put down roots in the country, which in turn Conceptual Advisory and Project Positioning Studies is expected to have a marked impact on the Capital’s real estate will benefit many areas of the economy, particularly the real estate Project Redevelopment/Repositioning Advisory market. sector. Investment Strategies – Acquisition and Disposal Rental Rates Sales and Leasing The downward adjustment in rental rates continued across Abu Commercial Dhabi’s residential sector in Q2 2019. Average rental rates were Industrial down 6% for apartments and 3% for villas from the previous quarter. Abu Dhabi’s rental market continues to be hampered by Residential new supply entering the market and reduced demand, as a result Retail of ongoing redundancies and companies providing lower rental allowances. Property/Facilities Management Commercial Mixed-Use Residential International Properties Abu Dhabi Residential Market Q2 2019 Snapshot London Off-Plan Residential International Homes and Investments International Relocations Price Movements Apartments Villas QoQ -5% QoQ -3% Rental Movements Apartments Villas QoQ -6% QoQ -3% The Observer - Abu Dhabi Residential Q2 2019 1 Change in real estate law could be a game changer for the Capital’s residential sales market The downward price corrections witnessed in Q1 2019, continued Al Reef witnessed the smallest price adjustment in Q2 with a in Q2, with average sales prices for apartments and villas down 1% decrease from Q1 2019, having witnessed the largest price 5% and 3% respectively from the previous quarter. decline in the previous quarter. Prices dropped from AED 820 per sqft in Q1 to AED 814 per sqft in Q2. One of the biggest challenges facing the Capital’s residential sales market, continues to be oversupply. With over 11,000 units Al Raha Beach and Al Ghadeer were the other locations which expected to be delivered in 2019, the market is likely to continue saw the second highest price adjustments, both decreasing to soften throughout the year as the market remains highly by 6% over the previous quarter with prices declining from competitive. AED 1,382 per sqft to AED 1,300 per sqft and from AED 798 per sqft to AED 750 per sqft respectively. The Abu Dhabi Government has, however, recently changed its real estate laws to allow foreign nationals to own freehold property in designated investment zones; a privilege previously Villas: Quarter-on-Quarter movement: (-3%) enjoyed only by UAE and Gulf Cooperation Council (GCC) nationals. This is expected to have a marked impact on the There were further villa price declines in Q2, with an average 3% Capital’s real estate market (more included on this below). drop from Q1 2019. The biggest downward price adjustments were witnessed at Al Raha Beach and Al Ghadeer, which dropped With regards to current trends in the Abu Dhabi residential market, 5% from the previous quarter from AED 1,227 per sqft to we have seen a shift towards affordability and competitive AED 1,160 per sqft and AED 734 per sqft to AED 700 per sqft pricing, in the form of flexible payment plans to entice investors. respectively. This now appears to have become the norm. Khalifa City was the only villa location which remained resilient Looking to the future, developers must differentiate their product with no price movement in Q2 when compared with Q1 2019. to succeed. We predict that innovative living solutions will become Prices remained stable at AED 872 per sqft. more prevalent in Abu Dhabi, as their popularity grows in Dubai. This trend is already starting to emerge with co-working and co- Al Reef witnessed a further 3% drop in average sales prices from living concepts such as Cocohub. AED 645 per sqft in Q1 to AED 628 per sqft in Q2. Apartment: Quarter-on-Quarter movement: (-5%) In contrast to the previous quarter, Saadiyat Island witnessed the biggest price adjustment in Q2 with an 8% decrease from Q1. Average apartment prices dropped from AED 1,526 per sqft to AED 1,400 per sqft. HOT TOPIC The new residential freehold law which has recently been announced by the Abu Dhabi Government is expected to greatly impact overall market sentiment in the Capital’s real estate sector. Foreign property investors in Abu Dhabi were previously only granted leasehold ownership with a maximum 99-year term. This new initiative will have the positive knock on effect of encouraging longer-term residency, which will in turn help bolster the economy. This is expected to work hand-in-hand with other recent Government initiatives such as the 10-year residency visa also aimed at tying expatriates into the market for longer periods of time. The Observer - Abu Dhabi Residential Q2 2019 2 The Observer - Abu Dhabi Residential Q1 2019 3 Apartments and Villas − Residential Sales Prices and Quarterly Change AED1,400 Halat Al -4% SAADIYAT Bahrani Q-o-Q AED1,526 ISLAND Movement SAADIYAT ISLAND Al Rafiq -8% AED975 AED 1,021 Saadiyat Q-o-Q Ras Ghurab Al Weheil Island Island Island AL REEM AL REEM Al Reem Movement Qassabi ISLAND ISLAND Island Al Aryam Al Jubail Island Ba Al Umm Yifenah Ghaylam Island -6% Island Q-o-Q Dubai Al Futaisi Movement AED1,300 AL RAHA BEACH Zayed Sports AED1,382 City -5% AL RAHA Q-o-Q BEACH AED700 Movement AED1,160 AL GHADEER Al Raha -4% Beach AL RAHA Q-o-Q Samaliyah BEACH AED734 Island Movement AED729 Yas Island AL GHADEER AL RAHA AED1,227 GARDENS -5% AED700 AL RAHA BEACH Q-o-Q AL RAHA Al Raha Movement GARDENS Gardens Al Reef -6% Khalifa City Q-o-Q Al Ghadeer ICAD II Movement Masdar City Abu Dhabi AED820 International AED750 AL REEF AED814 AED798 Airport AL GHADEER AED872 AL REEF AL GHADEER KHALIFA CITY -1% AED645 Q-o-Q AED872 AL REEF Movement KHALIFA 0% CITY Q-o-Q Movement -3% Q-o-Q Movement AED628 AL REEF Figures in AED/Sq Ft Villa Sales Q1 2019 Villa Sales Q2 2019 Apartment Sales Q1 2019 Apartment Sales Q2 2019 QoQ Movement Source: REIDIN & Chestertons The Observer - Abu Dhabi Residential Q2 2019 4 The Observer - Abu Dhabi Residential Q2 2019 5 180,000 0% 160,000 PE -2% R 140,000 CEN AL T T 120,000 -4% A GE CHANGE 100,000 -6% AED REN 80,000 60,000 -8% 40,000 -10% 20,000 0 -12% Al Raha Beach Area Al Ghadeer Al Reef Al Reem Island Saadiyat Island Khalifa City Al Khalidiya MBZ Corniche Road Muroor Area Figures in AED ‘000 p.a Studio 1BR 2BR 3BR QoQ Change Source: Propertyfinder and Chestertons Tenants focused on affordable rental Villas − Residential Market Rent and Quarterly Change opportunities and attractive incentives The downward adjustment in rental rates continued across Abu The most resilient location for apartment rents was Al Reef with 350,000 0% PE Dhabi’s residential sector in Q2 2019. Average rental rates were an average 2% decline from the previous quarter. A typical 2 R down 6% for apartments and 3% for villas from the previous bedroom apartment in Q1 was AED 73,000 per annum dropping 300,000 -1% CEN AL T quarter. to AED 71,000 per annum in Q2. T 250,000 A -2% GE CHANGE 200,000 Abu Dhabi’s rental market continues to be hampered by new Other locations which witnessed modest declines in average -3% supply entering the market and reduced demand, as a result of apartment rents were Corniche Road and Al Reem Island where AED REN 150,000 ongoing redundancies and companies providing lower rental there was a 5% decline from Q1 2019. In Q2, a typical 3 bedroom -4% allowances. apartment rented for AED 155,000 per annum on the Corniche 100,000 Road and AED 130,000 per annum on Al Reem Island. 50,000 -5% We have, however, seen consistent demand for affordable rental 0 -6% opportunities in locations which are accessible to major routes Villas: Quarter-on-Quarter movement: (-3%) Al Ghadeer Al Reef Al Raha Khalifa City Al Reem Al Khalidiya MBZ and offer good community facilities such as shops and parks etc. Gardens Island Although, in these locations, landlords are still having to offer The Capital’s villa market appeared to fare better than the incentives such as multiple rent cheques and rent free periods in apartment sector in Q2 in terms of rental declines. The most Figures in AED ‘000 p.a 3BR 4BR 5BR QoQ Change order to remain competitive. resilient villa locations in Q2 were Al Khalidya and Al Reef, which Source: Propertyfinder and Chestertons witnessed a 1% decline in rents from Q1 2019. Apartments: Quarter-on-Quarter movement: (-6%) The biggest villa rental declines in Q2 were in Al Reem Island The highest average rental declines for apartments were seen in and Al Raha Gardens with a 5% average drop from the previous Mohammed Bin Zayed City and Al Muroor, with rents decreasing quarter.