Abu Dhabi’s real estate market may see fresh pressure in the fourth quarter with an additional 11,000 homes scheduled to be handed over before the end of the year, Jones Lang LaSalle said.
Steps taken by the city to consolidate real estate projects by state-run entities and reprioritise investments will take a short-term toll on prices, the property consultancy said in a report.
“The market is taking a short-term hit for longer term benefit,” David Dudley, head of JLL’s Abu Dhabi office, said in a statement.
Average real estate prices in the capital declined seven percent to AED 11,000 per sq, representing a 49 percent decline from their peak in 2008, the report said. The rate for apartments is slightly higher at AED 11,900 per sq m, compared to villas at AED10,100 per sq m.
Most Abu Dhabi developers have focused on delivering existing projects after suffering significant losses amid the economic downturn, which ended a five-year housing boom.
Aldar, the emirate’s biggest property developer, in January sold assets including a Ferrari theme park and convertible bonds to the government for AED19.2bn ($5.23bn) to pay off its debt.
Oil-rich Abu Dhabi in August announced plans to distribute AED2.3bn (about $626m) to more than 1,400 citizens in the form of housing loans, to build homes or renovate their properties.
The UAE said in June it had ringfenced AED7bn from its 2011 budget funds for housing projects and home loans for citizens, and infrastructure spending.
Around 2,800 residential units were delivered during the third quarter in Abu Dhabi, JLL said.
The majority of units were located in Al Zeina on Raha Beach, Yas villas and the Capital Plaza residential towers, bringing the total current residential stock to approximately 193,000 units.
Handovers are set to increase significantly in the fourth quarter, with apartments making up the majority of the supply. Several towers in Marina Square are complete and are awaiting power activation within the next few weeks.
Several Abu Dhabi developers have introduced rent-to-own schemes aimed at jumpstarting dales within their developments, which Jones Lang LaSalle, said had a positive impact on the sector.
“While residential sales transactions remain limited, the introduction of rent-to-own has had a positive effect on demand. This is currently available for Sorouh’s Sun Tower on Reem Island as well as Aldar’s projects at Al Zeina and Al Bandar on Raha Beach,” said the report.
The average rental price declined three percent in the third quarter but could fall further as fresh supply is introduced.
“Significant future completions of good quality residential buildings will continue to push rents down across Abu Dhabi through Q4 2011 and into 2012 and will narrow the price differential between Abu Dhabi and Dubai.”
In the commercial sector, vacancy rates are set to jump as new supply floods an already struggling market in the fourth quarter and early 2012. Some 20 percent of commercial real estate in the capital is standing empty, JLL said.
“Several projects, such as Al Bustan, have experienced further delays and are now scheduled for delivery in 2012,” it said.