Are property prices on the way down?

The banks say the extravagant prices in the Abu Dhabi market are starting to come down, the real estate brokers say demand still outstrips supply and so prices remain sky-high. What’s the real situation? ‘

Abu Dhabi’s property prices have come under the spotlight recently as international financial institutions, real estate agents, developers and analysts weigh in with varying opinions. Some believe prices will continue to decline for the foreseeable future, while others suggest that signs of stabilisation herald a revived strengthening of the market.

Deutsche Bank’s recent analysis enforces the price-decrease sentiment: “the real estate market prices in the UAE are unlikely to bottom out before the end of 2009”. The bank’s report suggests that from Q4 2008’s property price peaks there has been a 30 percent drop in prices for Abu Dhabi and 50 percent for Dubai. This is expected to be followed by a further 15 to 20 percent decrease for the UAE, though Abu Dhabi – with its property under-supply – is expected to fare better than neighbouring Dubai.

“We remain cautious given the limited number of transactions and the continuing declining trend in rents. We identify risks of further weakness driven by the exodus of expatriates and new supply flowing into the market.”

In contrast, regional investment bank EFG-Hermes has adjusted the bullish view it expressed last year. In June 2008 it reported that no new residential developments were set to come online until the end of 2009, so prices were expected to continue rising as demand outstripped supply. The bank’s expectation was that 2008’s 25 percent increase in prices would be followed by a further 15 percent to 20 percent climb this year.

The current view of EFG-Hermes VP Sana Kapadia is that property prices in Abu Dhabi “had not been immune to the correction precipitated by the global financial crisis”. She explains that prices had decreased a lot quicker than expected in Abu Dhabi, about 30 percent since the peaks in 2008, but that they were also expected to recover more quickly.

She believes that the full extent of the correction has now been felt and that prices should now start to return to 2007 levels. She also explains that the shortage of affordable housing had been taken on board by developers and that a number of large projects were being re-engineered to fit the needs of the market – redesigned to be nearer AED 800 and AED 1,000 per square foot, against the top-end AED 2000to AED 3,000 seen last year.

As for mortgages: “Abu Dhabi hasn’t seen a real cessation of mortgage activity. It has gone down, but not to the same extent as Dubai”. HSBC confirms this: the bank’s Regional Head of Assets and Liabilities, Venkatesh Srikantan, says “between the last quarter of 2008 and first quarter of 2009, there has not been any radical change in the number of mortgage applications. But if you compare it to a year back, there has been a greater decline”.

But what changes are being felt by those at the sharp end of the real estate market? Mark Saunokonoko, group communications manager for Pure UAE, says that rental prices are still “very expensive” but are showing signs of a decrease. He notes that this is particularly evident in the leasing of villas, with prices dropping about 15 percent in the last quarter as a result of families leaving the UAE capital and so freeing up more properties. Apartment rents though have shown no sign of letting up, instead rising steadily this year.

Monika Benning, a managing partner at Aztec Properties, confirms that rentals for studios, and one- and two-bedroom units were still high as a result of limited supply. Prices for bigger properties – those with five to seven bedrooms – are coming down, however, as expatriate families look for smaller units.

“We do see more popular properties becoming available in compounds and buildings in the Corniche,” Benning observes. “You can choose now, which would have been impossible last year.”

Director of marketing and business development for MD Real Estate, Amanda Clarke, has also seen rental prices “inching down a little bit”. She says that the best indicator at the moment is the Al Raha development where prices have come down and, as a result, there is currently significant demand for these high quality units.

Clarke says that the most difficult demographic is families looking for housing on a budget of AED 150,000 to AED 200,000. She hopes that with the Al Reef development coming online in the near future there would be more units available in the price-range; she was confident that the government’s Plan Abu Dhabi 2030 would see sustainable development in line with population growth.

Properties in more “remote” areas off the island are more readily available, including the Khalifa City sections, Mohammed Bin Zayed City and the Al Raha developments. However, Benning adds that these areas are not perceived as desirable as they are still “undeveloped” and far from schools and the business district. The most popular locations remain the central areas the Corniche, Khalidiya, Karama, Manasir and Al Bateen.

There are signs of stabilisation, and that may be a precursor for increasing prices. Demand remains high; Abu Dhabi is still an attractive place to be, both personally and commercially. What’s not clear yet is the impact of possible population decrease how many expats will be leaving this summer? – and a sudden rush of new property being released as developments come to fruition this winter.

So what’s the real situation? Is property getting more affordable here or not? There’s no clear answer yet. We’ll probably have to wait until early next year to see all the factors shaking down.

[Writer] Olivia Spadavecchia

[Originally published in Abu Dhabi Week vol 2 issue 26]

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