Abu Dhabi property yields continue to be attractive to investors with an average return of 5 per cent despite a 2 per cent decline in residential rental rates, said a new report by Chestertons Mena, a leading international property agency.

Following a relatively flat performance in H1 2016, investors are still being rewarded with an average 5 per cent gross yield across the city, topping out at 8.8 per cent in some areas, said the latest residential market report for Abu Dhabi by Chestertons Mena.

“Although the market has flattened further in Q2 and witnessed declines as sales and rental rates dip further, rental yields are still rewarding investors and proving that the capital is still the place to be," said the report.

"Apartments in Al Reef Downtown, Al Ghadeer and Al Muneera all notched yields of 8.8 per cent, 7.7 per cent and 7.5 per cent respectively,” said Declan McNaughton, managing director UAE, Chestertons Mena.

Overall, apartments saw a 2 per cent decrease in rental rates during the second quarter of 2016 compared to an increase in Q1 2016 with average lower range annual leasing rates for studio and one-bedroom apartments commanding Dh40,000 ($10,890) and Dh52,000 ($14,157), respectively.

“On average the residential rental market has dropped by 2 per cent with the luxury end of the segment bearing downward pressure due to a reduction in spending, compounded by cuts to government spending due to lower oil prices. The remainder of the year will see marginal declines. However, solid yields will still prove popular with investors,” added McNaughton.

An average two-bedroom apartment in Al Reef Downtown rents for Dh108,000 annually, a reduction of Dh2,000 compared to Q1 2016, while a similar sized property in Al Reem Island will cost Dh140,000 per annum. Al Bandar remains one of the most expensive locations – a two-bedroom apartment will cost Dh193,000 per annum, again a minimal decrease of Dh2,000, compared with the first quarter of the year.  

The villa rental market also witnessed decreases across the board this quarter. Rental rates varied from Dh105,000 for an entry level lower range three-bedroom villa up to Dh145,000 and Dh175,000 for four and five-bedroom villas in the same category.

The cost of leasing an average three-bedroom villa in Al Reef for a year is now Dh148,000, in Khalifa City Dh183,000 and in Saadiyat Island Dh335,000.

In terms of average sales prices, both apartment and villa markets witnessed further falls with a marginal drop of 1 per cent in Q2 2016. The average sales price for apartments in the capital stood at Dh1,340 per sq ft in Q2 2016, with villas selling for Dh1,088 per sq ft.

The apartment developments that had witnessed increases in Q1 were impacted by the lull in spending and recorded some price correction. Al Zeina dropped to Dh1,495 per sq ft from Dh1,520 in Q1 2016; and Al Reef Downtown dipped to Dh925 versus Dh930 per sq ft recorded in the first quarter of the year, with both areas returning to prices originally witnessed in Q4 2015.

“We’ve seen a marginal decrease this quarter and once again the rate of decline variance among the communities demonstrated mixed sentiments in terms of sale price. The addition of new units delivered this past quarter and a further 3,500 expected by the end of the year will result in marginal fluctuations during this period of consolidation,” said McNaughton.

However, villa prices in Al Reef bucked the trend and stayed unchanged at Dh1,010 per sq ft, whilst minimal changes were seen in Al Raha Gardens and Khalifa City with prices dropping to Dh985 and Dh840 respectively.

Prices in upscale Saadiyat Island dropped once more and were at Dh1,580 per sq ft, the report said. -TradeArabia News Service