Q4 2016 Abu Dhabi Residential Market Report by cavendish_maxwell

Abu Dhabi Residential Market Report

2016

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Abu Dhabi Residential Market Report - Q4 2016

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ÂŠ Cavendish Maxwell 2017 | www.cavendishmaxwell.com

Foreword Cavendish Maxwell is a highly respected independent firm of chartered surveyors and property consultants, focusing on property services throughout the Middle East and Africa. Established in 2008, Cavendish Maxwell has grown into one of the region’s largest and highest profile property companies, employing over 60 people across 8 departments.

The Cavendish Maxwell Quarterly Residential Market Report for Abu Dhabi provides a summary and analysis of the apartment and villa properties in investment zones, highlighting the price movement, rent and yield scenario, residential supply as well as the macro-economic factors impacting this segment.

Our experience covers property, land and business asset valuations; investment; asset management; fund management; disposals and acquisitions; rent reviews; lease renewals; development appraisals; advisory services; market research; feasibility studies; project management and building consultancy.

Abu Dhabi residential market highlights Average price movement*

Residential supply*

Quarter on Quarter % change

Q4 2016 Completions

-0.2% -0.2%

1,900 units

12 month % change

2017 Pipeline

-2.0% -2.5%

8,300 additional units *The data provided is based on apartment and villa properties in Abu Dhabi investment zones only

Contents • Macro-economic factors

• Rent performance

• Investment climate

• Residential supply

• Price performance

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Abu Dhabi Residential Market Report - Q4 2016

Macro-economic factors Figure 2

Slowdown in housing inflation, which weighs heavily in the Consumer Price Index (CPI) in UAE, has been the significant contributor to lower headline inflation for UAE since mid-2015.

Abu Dhabi: % change in consumer Dhabi - % change in Consumer Price Index priceAbu index 4 3

Overall GDP growth in the UAE is expected to decline to 2.3% in 2016, down from 4% in 2015 due to the effect of lower oil prices on the economy. In 2017 IMF expects slight recovery in GDP to 2.5%. • IMF’s regional director highlighted that Abu Dhabi’s GDP growth would experience a “sharp decline”, down from 4.3% in 2015 to 1.5% in 2016 and 1.7% in 2017.

MoM % change

Nov-16

Oct-16

Sep-16

Aug-16

YoY % change

Source: Federal Competitiveness and Statistics Authority Figure 3

Real GDP estimates Real growth GDP growthtrend trend andand estimates 7.1%

8.0% 7.0% 6.0% 5.0%

4.9%

4.7% 3.1%

4.0%

4.0% 2.3% 2.5%

3.0%

Figure1

Jul-16

Jun-16

May-16

-1

Apr-16

Mar-16

Feb-16

• Following the oil price recovery in October, and the more recent announcement by OPEC to cut supplies, there are likely to be upward inflationary pressures from the transport and communications segment. However, these may be offset by softened housing inflation, which is likely to continue in 2017.

Jan-16

• Declining fuel prices in the first half of 2016 have also been a factor in lowering headline inflation.

3.7% 3.1% 3.4%

2.0% 1.0%

Non-oil real GDP growth (%)

0.0%

2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016E2017E2018E2019E2020E 2016E 2017E 2018E 2019E 2020E

Source: IMF, National Bureau of Statistics, Statistics Centre Abu Dhabi, Dubai Department of Economic Development

0 -1

Figure 4

Currency movement Currency Movement

Source: IMF

• Meanwhile, analysts estimate a rocky 2017 for the UK pound sterling as policymakers begin the process of European Union exit. Article 50 (that governs the exit) is likely to be “triggered” as early as the first quarter of 2017.

64 62

0.6

60 58

0.4

0.2

USD/EUR

Nov-16

Jul-16

52 Sep-16

May-16

Jan-16

USD/GBP

Mar-16

54 Sep-15

0.0 0

Nov-15

USD/Euro, GBP

0.8

Jul-15

• The decision to raise interest rates for the second time in a decade sent the US dollar to a 14-year high against the euro in mid December.

1.0 1

USD/INR

The strengthening of the US dollar has made the UAE dirham stronger relative to other foreign currencies, thus impacting inflow of capital into tourism, retail and real estate sectors from the economies of Europe, India and Russia.

1.2

Mar-15

2017

May-15

UAE

Jan-15

2016

Saudi Arabia

Nov-14

2015

Qatar

Jul-14

2014

Oman

Sep-14

Kuwait

May-14

Bahrain

USD/INR

Source: Cavendish Maxwell research

Figure 5

Petrol & prices Diesel Prices UAE petrol &UAEdiesel 2.4 2.2 AED/ litre

1.8 1.6 1.4 1.2 1.0

• The Ministry of Energy announced that petrol and diesel prices will rise in January by 6.1% to 7.1% for all types of fuel.

50 40 30 20

Brent

West Texas

Dec-16

Nov-16

Oct-16

Sep-16

Aug-16

Jul-16

10 Jun-16

• The Iraqi Oil Minister also indicated that the country would cut supply by 200,000-210,000 bpd from January.

May-16

• Saudi Arabia, which is OPEC’s largest producer, has agreed to bear a significant portion of the cuts.

Global oil prices Global Oil Prices

Feb-16

• The official start date for countries to begin cuts is Jan 1, with OPEC and non-OPEC producers expected to lower production by almost 1.8 million barrels per day (bpd).

Source: UAE Ministry of Energy Figure 6

Jan-16

Oil prices have gained nearly 25% since mid-November, following the landmark deal by OPEC members to begin supply cuts.

Unleaded Petrol 95 Diesel

USD / barrel

• Super 98 prices will rise to AED1.91 up 6.1% from December; Special 95 will cost AED1.80, up 6.5% and E Plus will cost AED1.73, up 6.7%. Diesel will cost AED1.94, up 7.1%.

Unleaded Petrol 98 Unleaded Petrol 91

Apr-16

• Petrol prices in the UAE in December decreased by an average of 5% in comparison to November and have increased by 1% since January 2016.

2.0

Mar-16

Fuel prices decreased in December with Super 98 at AED1.8/litre, Special 95 at AED1.69/litre and E Plus91 at AED1.62/litre. The diesel price was AED1.81/litre for December.

OPEC

Abu Dhabi Residential Market Report - Q4 2016

Investment climate Figure 7

According to rating agencies Moody’s and Fitch, the outlook for UAE’s banking system is “stable” and comparatively resilient to asset quality deterioration resulting from prolonged periods of weak oil prices.

UAE banking sector indicators UAE banking sector indicators 100.0% 80.0% 60.0%

• Profitability and capitalisation levels of UAE banks are expected to “provide protection against rising problem loans, while sufficient liquidity will cushion against reduced flows of government deposits into the banking system as lower oil prices impact government revenues” according to the Moody’s report, entitled “Banking System Outlook -- United Arab Emirates” released in October.

40.0% 20.0% 0.0% 2012

• Problem loans are expected to increase to around 5.5% of total loans by mid-2017, significantly lower than the 2011 peak of 10.6%.

Net interest margin

Figure 8

In December the Abu Dhabi Stock exchange (ADX) announced that it would introduce ‘technical short selling service’ in 2017.

2016*

Loan loss reserves to problem loans

by a quarter point to 0.75% in December.

• Impact on mortgage repayments are likely to be more pronounced if the US Federal Reserve continues to increase rates next year.

2015

Tier 1 capital ratio

* denotes preliminary data

• The USD Libor benchmark rate charged by some of the world’s leading banks for short-term loans also rose following the rate hike.

2014

Problem loans to gross loans

US Federal Reserve increased interest rates

• In response, the Central Bank of UAE raised the interest rates applied to certificates of deposits. As a result, the Eibor (Emirates Interbank Offered Rate) also edged upward over the same period, thus increasing the cost of borrowing in the UAE interbank market.

2013

Source: Moody’s Investors Service

Share Price Price Performance Performance Share priceShare performance 5,000 5,000

3.50 3.50 3.00 3.00

4,000 4,000

2.50 2.50 2.00 2.00

3,000 3,000

1.50 1.50

2,000 2,000

1.00 1.00

1,000 1,000

0.50 0.50 0.00 0.00

Aldar Aldar

Eshraq Eshraq

Manazel Manazel

RAK RAKProperties Properties

General GeneralIndex Index(ADI) (ADI) Source: Abu Dhabi Securities Exchange

• This would enable investors to sell stocks that they don’t own in order to gain profits from the price difference if the stock value goes down. • Through this move, the exchange aims to improve transaction volumes and attract foreign investors and could boost liquidity in share trading, which has remained a challenge for regional bourses. • When implemented, Abu Dhabi will become the first stock market in the GCC to permit sale of securities owned by another investor.

Â© Cavendish Maxwell 2017 | www.cavendishmaxwell.com

Abu Dhabi Residential Market Report - Q4 2016

ÂŠ Cavendish Maxwell 2017 | www.cavendishmaxwell.com

Â© Cavendish Maxwell 2017 | www.cavendishmaxwell.com

Abu Dhabi Residential Market Report - Q4 2016

Price performance Apartments Apartment prices in Abu Dhabi registered modest declines of 0.2% on average during Q4 2016, with 12 month declines averaging 2.0% in investment zones.

Figure 9

• The 12 month change in apartment prices range from a 1.6% to 2.5% decline across investment zones in Abu Dhabi.

Abu Dhabi Residential Prices vs. Oilvs. oil Abu Dhabi residential prices

• While the rate of decline has slowed in comparison to the first half of the year, the residential market in Abu Dhabi is expected to remain under pressure from redundancies in the oil and gas sector as well as those likely to result from the mergers of NBAD-FGB and MubadalaIPIC.

120 100 80 60

• Average apartment prices in Abu Dhabi investment zones have declined nearly 7% since the highs in Q2 2014, and weakened investor demand as a result of global economic trends, uncertainty over policies under the new U.S. President and oil price slump will also impact residential market in the emirate.

40 20 0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016

1180 1160 1140 1120 1100 1080 1060 1040 1020 1000

OPEC Basket Crude Oil Price USD/barrel Abu Dhabi Average Residential Sales Rate (AED psf) Source: Cavendish Maxwell research Figure 10

A pa rtm ent p r i ce p e r f o r m a n c e Apartment price performance 0.0%

1,800

-0.2%

-0.3%

-0.2% -0.5%

1,400

-1.0%

1,200 1,000 800

-1.8%

-1.5%

-1.6%

600

-2.0%

-2.1%

400

% change

Average price ft)ft Average price(AED AED/ /sqsq

1,600

-0.2%

-2.5%

-2.3% -2.5%

200 0 Saadiyat Beach Residences

Q3 2016

Al Raha Beach

Q4 2016

Al Reem Island

QoQ % change Q3 2016 - Q4 2016

Al Ghadeer

Al Reef Downtown

-3.0%

12 month change Q4 2015 - Q4 2016

Source: www.propertymonitor.ae

Villas Villa prices in Abu Dhabi investment zone areas registered an overall average decline of 0.2% in Q4 2016 and a 2.5% decline on average over the last 12 months.

• Villa prices at Al Raha Gardens and Al Reef Villas declined by 2.8% in 12 months, with quarterly declines of 0.2% and 0.3% respectively. • Investors are adopting a wait-and-see approach and appear reluctant to commit to a purchase in the emirate until signs of stability emerge.

• In light of weakened demand from regional investors, Abu Dhabi based developers are beginning to promote their products beyond traditional markets such as the GCC, to a wider investor base in East Asia, UK, Sub-Saharan Africa and the U.S. • Payment plans are also being set on the 25/75, 20/80 model with majority of the payments due post handover in order to attract expat buyers.

Figure 11

V il l a pri c e p e r f o r m a n ce

Villa price performance 0.0%

1,800 1,600

-0.2%

-0.3%

-0.2%

-1.0%

1,200 1,000

-1.5% 800

% change

Average sqft) ft Averageprice price AED (AED // sq

-0.5% 1,400

-1.8% -2.0%

600 400

-2.5% 200

-2.8%

Al Raha Gardens

Al Reef Villas

Q3 2016

Q4 2016

QoQ % change Q3 2016 - Q4 2016

Saadiyat Beach Villas

-3.0%

12 month change Q4 2015 - Q4 2016

Source: www.propertymonitor.ae

Abu Dhabi Residential Market Report - Q4 2016

Rent performance Figure 12

Apartments:

Gross investment - Apartments Gross Investment yield Yield - Apartments

Apartment rents declined 1.1% on average during Q4 2016, with two bedroom properties registering a higher decline than studios and one bedrooms.

12.00% 10.00% 8.00%

• Studio rents declined by 1.4% in Al Ghadeer.

6.00%

• One and two bedroom apartment rents in Al Reef Downtown registered witnessed declines of more than 2% on average quarteron-quarter.

4.00%

• Investment yields for apartment communities in investment zones average 7.5% in Q4.

0.00%

2.00%

• In December, the Abu Dhabi Municipality reintroduced the 5% rent cap, which forbids landlords from raising rents beyond that mark during lease renewals. While it is an unorthodox move coming at a time of rent declines, the rent cap is likely to give some respite to tenants who remain under pressure from limited job growth and increasing redundancies in some sectors.

Al Reef Downtown

Al Reem Island

Al Ghadeer Al Raha Beach

Q3 2016

Saadiyat Beach Residences

Q4 2016

Source: www.propertymonitor.ae

Figure 13

A partm ent re n t s - Q 4 2 0 1 6 Apartment rents - Q4 2016

0.0%

200,000

0.0%

180,000 -0.5%

160,000

AED per annum

140,000

-1.0%

120,000

-1.0%

-1.2%

100,000 80,000

-1.5%

60,000

-1.9%

40,000

-2.0%

20,000 -

Al Ghadeer

Al Raha Beach Studio

1 bed

Al Reef Downtown 2 bed

Al Reem Island

Saadiyat Beach Residences

-2.5%

Average QoQ % change

Source: www.propertymonitor.ae

Figure 14

Villas:

Gross investment yield Villas Gross Investment Yield --Villas

Rents for villa communities in Abu Dhabi investment zones have declined 1.8% on average in Q4 2016, higher than the declines in apartment rents.

8.00% 7.00% 6.00% 5.00%

• Rents at Al Raha Gardens declined more than properties at Al Reef and Saadiyat Beach, with a 2.2% drop in Q4 2016. However, 5 bedroom unit categories at Al Reef and Saadiyat Beach Villas have registered declines of more than 2% this quarter.

4.00% 3.00% 2.00%

• Yields for villas in investment zones range from 4 to 7% in Q4.

1.00% 0.00%

Al Reef

Al Raha Gardens Q3 2016

Saadiyat Beach Villas

Q4 2016

Source: www.propertymonitor.ae

Figure 15

V i l l a rents - Q 4 2 0 1 6

Villa rents - Q4 2016 0.0%

500,000 450,000

-0.5%

400,000

AED per annum

350,000 -1.0%

300,000 250,000

-1.4%

200,000 150,000 100,000 50,000 -

-1.5%

-1.8% -2.2% Al Raha Gardens

Al Reef 3 bed

4 bed

5 bed

Saadiyat Beach Villas

-2.0%

-2.5%

Average QoQ % change

Source: www.propertymonitor.ae

Abu Dhabi Residential Market Report - Q4 2016

Residential supply 2016 Completions:

2017 Pipeline Supply:

Approximately 1,900 residential units have been completed in Abu Dhabi investment zones in 2016.

There are more than 8,300 additional units scheduled in investment zones in 2017.

• More than 90% of the completed units in 2016 are apartments, with the majority located in Abu Dhabi city and Al Reem Island.

• The key locations for upcoming supply in 2017 are Abu Dhabi city, Al Reem Island and Al Raha Beach. Majority of the supply (over 90%) is apartments.

• Approximately 1,500 units have been delayed from 2016 to 2017. • Over 27,000 units are expected to be added to investment zones between 2017-20. Figure 19

A bu D habi re s i d e n t ia l s u p p l y 2 0 1 7 - 2 0 2 0

Abu Dhabi Residential Supply 2017 - 2020

Additional Units (investment zones)

12,000 12000 10,000 10000 8,000 8000

6000 6,000 4000 4,000 2000 2,000 0

2017

2018

2019

2020

Pipeline supply

Source: Cavendish Maxwell Research

Methodology •

Sale prices and rents are derived from Property Monitor, a comprehensive real estate platform established in 2014 to provide real-time, market-wide access to transactions and trends. Working with agencies, banks, developers and corporate investors, it provides a deeper insight into real estate advisory, investment, and lending activities. The average sales price per sq. ft. is based on the Property Monitor Index that incorporates signed contracts, registered transactions, valuations and listings verified by Cavendish Maxwell valuation department.

•

Supply projections for residential projects are based on regular tracking of construction status, new launches, delays, etc. This is carried out through site inspections as well as discussion with developers, contractors, in-house building consultancy team and related government entities.

Development Advisory and Real Estate Research Cavendish Maxwell’s advisory and research team uses its in-depth knowledge of the real estate sector and extensive network to support our clients through the development process, providing strategic consultancy and advice to guide and support investment decisions from concept to delivery. We have advised on schemes with a gross development value of over AED 3 billion in the last year. Our reports are used internally for business planning purposes and to satisfy the criteria of external financiers and auditors. Our name is trusted by all major banks across the UAE, supported by our presence on over 30 bank panels across the region.

Our documents and advice meet banking and audit criteria, proven by our presence on over 30 bank panels across the UAE

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Disclaimer © Cavendish Maxwell and Property Monitor 2017. The information and analysis contained in this report has been obtained from or is based on information from a variety of sources generally regarded to be reliable and assumptions which are considered reasonable, and which was current at the time of undertaking market research. However, no representation is made, or responsibility accepted by Cavendish Maxwell or Property Monitor in respect of the accuracy or currency of this information. Cavendish Maxwell and Property Monitor do not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication

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