Harbor Real Estate Blog

30-May-2010 - Emirates Business 24-7

Fall in Abu Dhabi villa prices slows

Properties continue to attract more tenants than buyers.

Decline in villa prices in Abu Dhabi has slowed in the first quarter 2010, as prices fell five per cent in comparison to the fourth quarter of 2009, real estate consultants said.

Prices fell 15 per cent in the fourth quarter 2009 compared to the third quarter 2009, they added.

Mohanad Alwadiya, Managing Director, Harbor Real Estate, said: “Although villa prices in Abu Dhabi have come down on an average of five per cent in the first quarter of 2010 compared to the fourth quarter of 2009, the real estate sector continues to attract more tenants than buyers.”

Paul Maisfield, General Manager and Head of Professional Services, Asteco, Abu Dhabi, said: “Abu Dhabi is still very much a rental market. Like the previous quarter there have been some rental reductions in the villa market and this has been particularly pronounced at the upper-end of the market.

“With respect to hand-over of Golf Gardens, our research shows that about 70 per cent of these villas are being made available for rent, with the remaining 30 per cent occupied by property owners. Moreover, approximately half the villas that have been rented out to date are company contracts.”

According to Asteco, close to 3,800 villas are specifically being developed for the leasing market, which are due for handover in 2010.

“Majority of that will consist of low-to-mid-quality stock in Khalifa City A and B, and Mohammed Bin Zayed City. We expect many of these to be sub-divided into smaller units, making it difficult to predict how many residential units will actually come onto the market in those areas,” said Maisfield.

“A large proportion of villas at Golf Gardens have come onto the rental market. The majority of tenants in this development are western expatriates.”
Alwadiya said: “We are noticing that majority of villa projects are being offered for lease-purposes with the estimated ratio reading 70 per cent for lease-purposes and 30 per cent for sale.”

He said the overall appetite for buying properties has dropped. “Although we have noticed an improvement in the mortgage offers during 2010, the end-user funding options are still not attractive enough.”

Loshini Lawrence, Operations Manager, Better Homes, Abu Dhabi, said: “There is a high demand for rentals at the moment. Given the current sale prices, high bank interest rates and lack of ready to move in freehold properties, rentals still tend to be on the increase.”

However, once the market receives more good quality and location inventory and banks start to lend more aggressively, the market will experience a slight change in terms of the buyer interest, she said. “Selling prices will always play a key role in market dynamic.”

According to Asteco, “On an average, allowances tend to be in the region of Dh300,000 per annum to Dh350,000 per annum for senior management positions. Consequently, five-bedroom villas quoting above Dh400,000 per annum are struggling to let and prices have fallen to more realistic levels, with some five-bedroom villas now available for less than Dh330,000 per annum.”

According to Asteco, the handover of the first phase of Al Reef villas revealed that new landlords have mortgage commitments and that they are looking to secure tenants early in order to avoid vacant periods. “As more phases are handed over in the next few months, rents in this development are likely to come under increasing pressure to drop further,” said Maisfield.

Harbor Real Estate said that current rentals for three-bedroom villas average Dh255,000 per annum, for four-bedrooms Dh280,000 per annum and five-bedrooms the average is Dh385,000 annually. “These rental prices are down by approximately 25 per cent from the same time last year.”

According to Better Homes, at Golf Gardens, villas can be leased from Dh310,000 per annum onwards, at Al Reef Villas, two-bedroom villas rent for Dh110,000 per annum. “This is approximately 15 per cent to 20 per cent down for the corresponding period last year.”

Asteco estimates around 5,500 new villas will be delivered to the Abu Dhabi real estate market during 2010. “Compared to some villa developments in Dubai, none of these developments can be considered high-end, except Hills Villas in Officer’s City. Areas such as Khalifa A and Mohammed Bin Zayed also have about 2,000 villas each in various construction stages. Most of these villas are owned by UAE nationals and held for investment purposes. The villas, which will be owner-occupied by UAE nationals, tend to be of high quality,” said Maisfield.

Alwadiya also said around 5,500 villa units will be supplied in 2010 with large numbers coming from Golf Gardens, Al Raha Beach and Al Reef Villas.
Asteco said the firm has not seen any significant fluctuation in completed villa prices over the past three months. “From an investment perspective, based on current prices, large villa developments of Al Raha Gardens, Golf Gardens and Al Reef are, on average, all achieving gross yields of about nine to 10 per cent,” said Maisfield.

Lawrence, however, said that prices were on the decline.

Alwadiya said that in the fourth quarter of 2009, villa prices continued to drop by an average of 10 per cent in sale prices and up to 15 per cent in rental prices. He added that prices have fallen on an average of 15 per cent in the last quarter compared to the previous quarter. “This provided evidence that escaping the effects of the global economic crisis is impossible for any economy, no matter how strong its fundamentals.”

“In the first and second quarter of 2010, the decrease in villa prices in Abu Dhabi started to soften. According to our records, the average decrease in villa prices in Abu Dhabi is at five per cent for sale prices and eight per cent for rental prices in the second quarter of 2010. On the main island, west and east districts are demanding a steep premium of 27 per cent for villas compared with similar sized units in the off-island districts,” said Alwadiya.

“Moving forward in 2010, as the UAE continues to emerge from the economic crisis, and as lending options become more available and affordable, we expect the demand for villas to start picking up again and this will help the prices stabilise after reaching more acceptable levels.”

Meanwhile, real estate agents said Golf Gardens and Al Raha Beach gardens were by far the most expensive villa communities in Abu Dhabi. “Golf Gardens is among the most expensive villa community in Abu Dhabi, although rents have fallen over the last one year by about 25 per cent as landlords’ expectations have fallen to meet the market.”

According to Harbor, the most expensive villas are the Al Raha Beach community and the Golf Gardens community. “On the other hand, the highest priced villas are still within the Nurai Island development, with some of the luxury villas being currently listed at Dh49 million. Also, some of the luxury villas at Saadiat Beach are being listed at prices ranging from Dh8m up to Dh30m,” said Alwadiya.

Better Homes said that currently, the most expensive rental community in Abu Dhabi is Marina Royal with pricing ranging around Dh950,000 per annum.
According to Asteco, villa rentals in the second quarter of 2008 in Abu Dhabi were on an average around Dh200,000 per annum for a three-bedroom, Dh245,000 yearly for a four-bedroom and Dh330,000 for a five-bedroom. “Prices reached a peak in the fourth quarter of 2008 with average rates as high as Dh380,000, Dh450,000 and Dh530,000 respectively for three-to-four-to-five-bedroom villas. Following this peak, prices have, on an average, fallen by around 40 per cent (fourth quarter 2008 to fourth quarter 2009).

“There are only two villa developments in Abu Dhabi, Al Reef Villas and Hydra Village, which are available for investments by expatriates.
“As both are mid-end developments, they are affordable to a larger buyer base that include western, Arab and Asian expatriates as well as UAE nationals.
“The other freehold villa developments were available for UAE nationals who predominantly bought for investment purposes to rent to expatriates.”
Meanwhile, Abu Dhabi continues to attract a larger percentage of villa buyers than apartment buyers. “Depending on the client, most expats purchase apartments or duplex within a building or villas within a self-contained community with a small garden. There is still an interest in well-designed and priced apartments with quality finishes and sea views,” said Lawrence.

Article from Freehold Monthly

Every month we invite you to have your property questions answered by an expert. This month, Mohanad Alwadiya tackles the task.

Q I’ve been looking at a few Union Properties developments, but am unsure about buying leasehold. How does this differ to freehold property in Dubai?

A The choice between freehold and leasehold property depends mainly on your particular needs and the asset type you wish to invest in. If you wish to buy a property for a limited number of years or you are buying a property to benefit from its annual rental yield, leasehold should be your preferable option as the cost would be considerably less compared to freehold. Similarly, the cost of leasehold for 30 years will be less than that for 99 years. Leasehold is common in many established overseas markets for high-rise apartments and integrated communities. This represents a benefit for owners in Dubai particularly as certain owners may visit infrequently and ‘forget’ to pay their maintenance bills. Under leasehold tenure contracts, the landlord could apply for an eviction order after a long period of non-payment, therefore safeguarding the integrity of the whole property or community.

Q Judging from the property classifieds, rents in Dubai Marina haven’t gone down much at all. Some even seem to have risen despite more supply coming on to the market. I’d like to buy an apartment to live in at the Marina; I’m just wondering which towers and areas of the Marina are the best options for long-term appreciation?

A During Q3 2009, Dubai Marina apartments witnessed a noticeable increase in rental rates, fuelled by the increased demand from visitors and tenants from Dubai and Abu Dhabi. This factor provided sellers and landlords with room to reconsider their offered prices with the aim of maximising their return on investment. Estimating long-term capital growth requires some careful thinking. This is where certain considerations such as location, property type, views, quality of structure, fit and finish, amenities, developer reputation and an estimation of future demand are taken into account.

You should seek some professional advice from property consultants. Given your personal objective is to maximise capital appreciation, I would recommend you consider towers in the central part of the Marina next to JBR (e.g. Al Sahab or Marina Promenade towers), and minutes away from The Walk.

Q I’m thinking of leaving my job and setting up a small company in a free zone. I’ve been impressed by some commercial buildings at Jumeirah Lakes Towers (JLT) as I do a lot of work in Abu Dhabi. Should I get a multiple-year lease at a discounted rate, or opt for something more short-term?

A I believe that the recession may be the best time to start a new business as you will be able to generate great savings and benefit from the reduced inflation rates which can impact your start up costs. JLT enjoys a strategic location and has a fantastic master plan. It also has a good balance between office and residential space.

Office tenants have the tendency to relocate less frequently compared to residential tenants due to cost of relocation, interior design and building client familiarity with their location. Since you will be able to obtain a better bargain from a long-term lease, I would suggest you opt for the multiple-year lease contract at a discounted rate which will only help reduce your set up costs and overheads over time.

Readers Questions answered by Mohanad Alwadiya - Gulf News.com

Q: We’re looking to buy a villa in Dubai in the coming year. How do you rate Jumeirah Village as an area to buy property in? What are the pros and cons?

A: Phase two of Jumeirah Village has just been handed over and this has created a buzz in the market, especially in the rental market for affordable two-bedroom villas. According to Nakheel, they are very confident and looking forward to completing all of the 2,200 villas by the end of this year, which is exciting news for the owners of house there. The pros are the affordable prices, a well-planned villa community, a good mix of planned retail and community facilities and the well designed villas and townhouses.

Although Jumeirah Village is strategically located, access is perceived to be inconvenient and it is in close proximity to high voltage power lines. The section that Nakheel is developing is progressing as planned. However, the Jumeirah Village Circle part, which is developed by private developers, is really behind schedule and is creating a lot of negative word of mouth in the marketplace and hence affecting the overall reputation of the Jumeirah Village development.
I would recommend buying a villa there because of the attractive prices and because the supply of villas is much lower than apartments and hence it offers a safer investment. If you are buying a villa to live in, Jumeirah Village offers an excellent community lifestyle.

Q: My wife and I have been looking at possibly buying a two-bedroom apartment at Burj Views in Downtown Burj Dubai as a buy-to-let property. Do you think this would be a reasonable option?

A: The Burj Dubai area is becoming popular with end-users because of the enjoyable living experience it offers. Having said that, and given the popularity of this area, the selling prices of units there have been inflated by the secondary market and resale activities. This has put a lot of pressure on rental yields. The rental return increase could not keep pace with sale prices as potential tenants would compare prices with other competitive areas in Dubai. High quality property consistently generates higher average yields over the long term. Affordable housing is expected to generate higher yields over the short-term before the lower quality of the establishment begins to be reflected in potential tenant valuations.

Q: There have been reports about rental increases in some areas of Dubai. In which areas do you think renters can still get good value for money?

A: Tenants can still expect to get bargain rental deals across the majority of the freehold zones in Dubai. I would recommend Jumeirah Lakes Towers as it remains very much underrated overall.
This development enjoys a very strategic location and has a fantastic master plan yet its true potential is still to be recognised. JLT has a good balance between office space and residential offerings.
The prices are at least 15% cheaper than Dubai Marina and Jumeirah Lakes Towers has the potential to achieve the same status as Dubai Marina, and in a very short time.
Do you have a property question that needs answering? Email fm@alnisrmedia.com along with your contact details

Property expert Mohanad Alwadiya answers reader questions - Freehold Weekly

Every week, we invite you to have your property questions answered by an expert. This week, Mohanad Alwadiya* tackles the task.

Q.. With banks willing to offer financing for apartments, I’m thinking of buying somewhere like The Residence in Downtown Burj Dubai. Do you think this a good ove? Can I expect a decent appreciation over, say, a five year period?

A.. I would say it’s definitely a good move. The Residence, Downtown Burj Dubai represents fantastic value at this time and with the market approaching the ‘bottom’,
the opportunity to make solid capital gains, particularly with a five-year investment horizon is very strong. In addition, with the Burj Dubai approaching completion, your
capital gain in the short-term will be accelerated. Remember that your future capital gain, regardless of property, will be heavily influenced by the decisions you make today. The fundamentals still apply and considerations such as the view, location, fit and finish, configuration and overall quality will have a big bearing on your ability to command a premium when you decide to resell in the future.

Q.. I’m thinking of buying an apartment in a reasonably priced new development, maybe Discovery Gardens. I’m just wondering if there are any hidden charges should I be aware of?

A.. First of all, you need to consider the charges associated with the transaction itself. If you purchase an apartment through a real estate agent, you will normally need to pay a 2% agency commission at the time of purchase. In addition to this amount, transfer fees of 2% will be payable to the Land Department and registration fees of Dh5,000 will apply. If you are financing your purchase, there are additional charges payable to your finance provider. These will vary between 1% and 1.5% of the total loan amount. Once you have moved into your new Discovery Gardens apartment, you will then need to pay an annual maintenance fee, which is currently about Dh30/ft², and includes your central cooling charges. However, this amount is currently under review and is expected to reduce significantly according to April 2009 press reports. Additionally, a further reduction is expected once the Owners Association is formed in accordance with the new strata title legislation. Alhough they’re not really‘hidden charges’, don’t forget that you will need to budget for property and contents insurance and, unless you want to live in the dark, you will need to account for DEWA (Dubai Electricity and Water Authority) expenses as well.

Q.. I’ve been told prime investment properties such as villas on Palm Jumeirah have suddenly become difficult to buy, as prices have dropped and sellers are withdrawing their properties from the market. Do you think prices have bottomed out there?

A.. By and large, yes. I think prices for villas have reached a bottom on Palm Jumeirah and it is extremely difficult to breach this floor.