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1. Macro-economic factors
2. Abu Dhabi Residential Update
3. Oil Price & Residential Prices Correlation
Contents
2
3
Source: Statistics Centre Abu Dhabi
Economic recovery in Abu Dhabi linked to oil price stability and increased government spending
The emirate’s economy is expected to achieve a growth rate of between 3.5% to 3.7% in 2017, according
to the Department of Economic Development.
Infrastructure spending will lead the growth charge with projects worth $64 million being approved by the
Executive Committee as part of the Abu Dhabi plan as of March 2017.
Growth of 3.5% to 3.7% expected in 2017
Real GDP growth, Abu Dhabi
GDP
Inflation
4
Rent declines and a strong dollar could balance rising consumer prices, which are expected to be pushed
higher this year as a result of rising utility and energy costs and school fees. The rise in rate of inflation is
expected to continue throughout this year with a spike next year with the VAT introduction.
Abu Dhabi - % change in Consumer Price Index
Rising utility costs and school fees to push consumer prices higher
Source: Statistics Centre Abu Dhabi
5
Abu Dhabi Securities Exchange (ADX) reported that AED3.13 billion and AED2.306 billion of
investment were pumped in by international investors in January and February 2017 respectively.
The real estate sector accounted for the lion’s share of total trades on the exchange, at 42.94%
and 44.61% respectively in the first two months of the year.
Mortgage rates in the country are expected to rise in tandem with the U.S. Federal rate increases
due to the dollar peg. The first of such increases was effected by the UAE Central Bank in March
2017. Current consensus predicts two more U.S. Federal rate hikes of 0.25% each in 2017.
Positive signs at the start of the year have also come from oil prices stabilizing close to the $50 a
barrel mark after OPEC announced output cuts in November. This should have a positive impact
on the UAE federal budget as hydrocarbon revenues are still the main contributor to country’s
budget.
However concerns still remain over the demand outlook and return on investment for sectors
such as real estate, transport, tourism and retail. Economic slowdown as a result of oil price
crash and government spending cuts undertaken in 2015 and 2016 continue to put pressure on
non-oil related businesses in the emirate.
Investment climate
6
Apartment price performance
Source: www.propertymonitor.ae
Price declines continue in investment zones, averaging 1.0% for apartments and villas over the
period Q1 2016 to Q1 2017.
Prices for apartments and villas in investment zones in Abu Dhabi have continued to decline through 2016
and Q1 2017. Apartments in Al Ghadeer, Al Reef Downtown and villas in Al Raha Gardens and Al Reef all
experienced annual declines of more than 1.0% on an average in Q1 2017.
Abu Dhabi price
performance – Q1 2017
7
Villa price performance
Price declines continue in investment zones, averaging 1.0% for apartments and villas over the
period Q1 2016 to Q1 2017.
There is expected to be increased pressure on housing demand due to job uncertainty from more high-profile
mergers of government-backed entities. These could also result in readjustment of employee benefit
packages such as housing allowances thus softening demand and resulting in further price declines.
Source: www.propertymonitor.ae
Abu Dhabi price
performance – Q1 2017
8
Apartment rents
Abu Dhabi rent
performance – Q1 2017
QoQ % change in rents averages -0.5% for apartments and -0.6% for villas in Abu Dhabi
investment zones
Apartment and villa rents in Abu Dhabi investment zones continued to decline in Q1 2017 and declines were
more pronounced among 2 bedrooms in Al Raha Beach and 4 bedroom villas in Al Raha Gardens. These
categories of units exhibited QoQ% declines of 2.2% and 3.3% respectively. Larger units are facing occupancy
pressure from weakened demand as job insecurity continues in the emirate.
Source: www.propertymonitor.ae
9
QoQ % change in rents averages -0.5% for apartments and -0.6% for villas in Abu Dhabi
investment zones
The Abu Dhabi municipal fee of 3% of rent came into effect from January 2017 and is a measure for increasing
and diversifying government revenues. It mirrors the 5% charge in Dubai and the 2.5% charge in Sharjah
collected at the time of annual rental contract issuance. The overall impact on the property market is expected
to be minimal, with the only challenge for Abu Dhabi tenants being backdated lump sum payment for the
period February to December 2016.
Villa rents
Source: www.propertymonitor.ae
Abu Dhabi rent
performance – Q1 2017
Abu Dhabi residential supply
Source: Cavendish Maxwell research
10
Nearly 83% of the total number of units completed in Q1 were apartments, with the majority of them located
in Saraya, Corniche area.
New project announcements during this quarter included Aldar’s mid-market housing at Reem Island and
Yas Island communities as well as Manazel’s 2,500 low-cost villas in Ghantoot, which are part of the next
phase of Al Reef development.
There are additional 7,800 units scheduled for the remainder of 2017, concentrated primarily in Abu Dhabi
City and Al Reem Island.
Approximately 1,200 residential units have been completed during Q1 2017 in investment
zones
APARTMENTS
Upcoming supply in investment zones (Q2 – Q4 2017)
6,200
VILLAS &
TOWNHOUSES
1,600
Abu Dhabi investment zones
residential supply
Note: Above supply excludes hotel apartments and mixed use developments.
11
Source: Cavendish Maxwell research
Summary of upcoming supply in key areas (2017-2020)
Development trends & challenges
12
Regulations and approvals
Funding and deal structures
• ADM stalled projects update
• The “new” off plan sales format
• Fire/life/safety and Green Building
Consumer demand
• Percentage of owner-occupants eclipsing 40% mark
• Serviced and hotel apartments competing with long-term units
• The value-driven luxury product
• Land leverage
• Lower risk appetite for lower returns
• Build-to-hold and longer-term return horizons