According to the second largest real estate developer in Abu Dhabi, residential rents could fall by 10% during the next year, due to the number of new homes being completed.
If this prediction is true then it would be extending a decline which could last several years.
The construction industry in Abu Dhabi suffered from the financial crisis at a much earlier stage than Dubai, although its subsequent decline has been much slower than the spectacular free fall suffered by Dubai, which is currently the worst performing market in the Middle East. Since the height of the boom rents in Abu Dhabi have dropped 40% from their peak according to Jones Lang LaSalle.
Apparently there will be 50,000 new homes which is 27% of the current supply in Abu Dhabi completed by 2014, with around 16,000 being completed this year. The worry is that developers may need to drop rents by more than 10% in order to attract tenants.
It's estimated that the market may take up to three years to absorb this supply of new homes, and that the oversupply will prevent rent and price increases. Offering tenants long-term leases and making sure properties are managed effectively will help mitigate some of the risk, and could help attract REITs and investment funds in the future.
At the moment the UAE isn't an attractive prospect as yields and transparency need to improve. The property market in Abu Dhabi was only opened up to foreign buyers in 2005, some three years later than Dubai.
Visit the original news source, Zainab Fattah at Bloomberg.