Issues of oversupply and ongoing economic uncertainty continue to put pressure on Abu Dhabi’s residential real estate market, according to the latest Abu Dhabi Residential Market Q2 2017 report from leading international property company Chestertons MENA.

Ivana Gazivoda Vucinic, Head of Advisory and Research, Chestertons MENA, said: “We are expecting prices to remain under pressure throughout the rest of the year due to the flat economic sentiment and the launch of several new residential projects compounded by a lack of investor-confidence. The sluggish economic growth of the Emirate is expected to have a detrimental impact on Government spending which in turn could lead to a drop in property prices because of high vacancy rates caused by job losses.”

Sales prices on average decreased by 3% for apartments during the second quarter of the year. Apartments on Al Reem Island witnessed the greatest decline of 7% as prices slumped from AED1,363 per sqft to AED1,273 per sqft. Properties in Al Ghadeer were the only bright spot, rising by 4% to AED1,050 per sqft.

Average villa sales prices fell by 4% in Q2, with Khalifa City recording the largest drop at 10% from AED832 per sqft to AED747 per sqft. Al Ghadeer and Al Reef witnessed declines of just 2% to AED904 per sqft, AED708 per respectively.  Al Raha Gardens fell 3% to AED821 per sqft.

It was a similar story for Abu Dhabi’s rental market. Average apartment rents fell by 3%, with only Al Raha Beach Area showing a marginal 1% increase – where the average price for a two-bedroom property currently stands at AED158,000 per annum, Al Ghadeer two-bedroom apartments witnessed a decline of 2% to AED70,000 per annum Al Reef Downtown and Al Reem Island declined by 2.5% and 3.5% to AED90,000 and AED120,000 respectively per annum.

Average villa rents also saw a slide of 2%, with properties in Al Reef witnessing a drop of 3.5%. Al Raha and Khalifa villa decreases were more subdued at 0.5% and 1% respectively. Rental prices for a five-bedroom villa in Al Raha was AED242,000 and in Khalifa prices for the same number of bedrooms was AED190,000.

Gazivoda Vucinic said: “We expect to see residents continuing to downsize their accommodation and moving to more affordable areas as companies cut back on accommodation allowances.”

The supply of quality properties in attractive locations is set to be alleviated through developments by Aldar Properties, Eshraq Properties and TDIC with the release of up to 4,000 units into the market in 2017, most of which will be located near Reem Island and the Corniche. Additionally, Mubadala Real Estate and Infrastructure recently unveiled the master plan for Arzanah, a new community development near Zayed Sports City in Abu Dhabi.

Gazivoda Vucinic, added: “Sales prices and rents are expected to remain under pressure during 2017 as the market witnesses decreased demand. When government spending begins to increase, we could see a certain element of confidence returning as more public-sector jobs are created, however this is not likely to happen in 2017.”

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