Q2 2016 Abu Dhabi Residential Market Report

Abu Dhabi Residential Market Report

Q2

2016

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Abu Dhabi Residential Market Report - Q2 2016

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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*

Q1 2016 - Q2 2016

H1 2016 Completions

-0.2% -0.2%

570 units

Q2 2015 - Q2 2016

H2 2016 Pipeline

-4%

-4%

3,100 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 - Q2 2016

Macro-economic factors Figure 1

Abu Dhabi - % Change in Consumer Price Index (CPI)

• The ‘Housing, water, electricity, gas and other fuels’ group accounted for the largest rise in the index for the first 4 months of 2016 compared with the same period of 2015, contributing 82.6 per cent to the change. This contribution resulted from an increase of 7.5 per cent in the prices of this group.

• The rise in consumer prices for the first 4 months of 2016 compared with the same period in 2015 increased consumer prices for citizen households by 2.7 per cent, followed by 3.2 per cent for noncitizen households and 3.7 per cent for share households.

4

% Change

The inflation rate in consumer prices in the Emirate of Abu Dhabi for the first 4 months of 2016 was 3.0 per cent.

3 2 1 0 -1

Jan-16

Feb-16

MoM % Change

Mar-16

Apr-16

YoY % Change Source: Federal Competitiveness and Statistics Authority

Figure 2

• A breakdown of the 3.0 per cent increase in consumer prices by welfare level shows increases of 3.0 per cent for households of the bottom and the middle welfare quintiles in January to April 2016, in comparison to January to April 2015 and a 2.9 per cent increase for the top welfare level during this period.

Abu Dhabi - Annual Inflation rate (%) 6 5 4

Inflation %

3 2

Apr-16

Mar-16

Feb-16

Jan-16

Dec-15

Oct-15

Nov-15

Sep-15

Jul-15

Aug-15

Jun-15

Apr-15

May-15

• In April 2016, the IMF revised their growth projections for the UAE with the overall real GDP growth being moderated to 2.4 per cent in 2016 from 3.9 per cent recorded in 2015.

Mar-15

0

Jan-15

1 Feb-15

As per revised International Monetary Fund (IMF) estimates in April, Abu Dhabi is projected to grow at 1.7 per cent in 2016 compared to 4.4 per cent actual growth recorded last year.

Source: Statistics Centre – Abu Dhabi

• Abu Dhabi’s non-oil Gross Domestic Product (GDP) reached AED196.1 billion during Q4 2015, marking an 8.2 per cent increase from the AED182 billion recorded in Q4 2014.

Figure 3

UAE - Real GDP and Consumer Prices

• Despite policy measures in response to low oil prices, IMF estimates the fiscal deficit in the UAE will widen in 2016 to about 7.2 per cent of GDP, before improving over the medium term.

10 5 %

• The current account surplus is projected to decline to 0.3 per cent of GDP in 2016. Private sector credit growth is expected to remain modest due to the slowing economy and rising fiscal financing needs.

15

0

Real GDP

2021P

2017P

2016P

2015

2014

2013

2012

2011

2010

-10

2009

-5 2008

• Global ratings agency Moody’s noted in May that the UAE government’s debt-to-GDP ratio is low, at around 18 per cent of GDP in 2015, and is expected to remain moderate. The agency also said that there has been a significant improvement in the leverage position of Abu Dhabi government-related entities. The agency expects the UAE’s fiscal reserves to remain above 130 per cent of the GDP over the next few years.

Consumer Prices (annual % change) Source: IMF, April 2016

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Figure 4

2.4 2.2

Unleaded petrol 91

Figure 5

Global Oil Prices 80 60 40

Brent

West Texas

May-16

Apr-16

Mar-16

Feb-16

Jan-16

Dec-15

Nov-15

Oct-15

Sep-15

Aug-15

0

Jul-15

20

OPEC Source: Cavendish Maxwell research

Figure 6

Currency Movement 1.2

70

1.0 65 0.8 0.6

60

USD/INR

Borrowing costs for companies have risen this year due to higher Emirates Interbank Offer Rate (EIBOR) (increasing by approximately 35 basis points) compared to Q1 2015.

Diesel Source: UAE Ministry of Energy

USD/GBP - USD/Euro

• The ‘leave’ vote in UK on 23 June 2016 shocked global markets, including the UAE, and has created uncertainty in a region already grappling with oil price instability.

1.4

Aug Sep Oct Nov Dec Jan Feb Mar Apr May 15 15 15 15 15 16 16 16 16 16 Unleaded petrol 98 Unleaded petrol 95

• The April Summit in Doha between some of the largest oil producing economies failed to reach a deal on setting output. A follow-up summit in Vienna in June involving OPEC nations also focused on avoiding a production quota, with member countries asserting that their strategy of reaching a balance was working.

• The dirham peg to the dollar has remained a subject of speculation following the oil price drop over the last two years. However, the UAE Central Bank has reiterated the country’s commitment to the dollar peg. The appreciation in the dollar has made the emirate more expensive for tourists but FDI inflows and real estate transaction volumes have registered a growth.

1.6

1

USD / barrel

In Q2 2016 the global oil price recovered to near USD50 from a twelve year low of USD27 per barrel in January.

1.8

1.2

• Among the policies to diversify the economy away from oil, the UAE has endorsed a target to draw 24 per cent of its primary energy consumption from renewable sources by 2021.

• The UAE has faced the oil price slide from a comparatively stronger position than other oil exporters as a result of past macro-economic policies, which have ensured large fiscal buffers. The economy is more diversified and the country continues to attract investments due to its safe haven status. An improvement in oil prices is expected to support growth in the economy in the medium term, which will also be boosted by increased investment ahead of Expo 2020 being hosted

by Dubai.

2

Jun-15

• Petrol prices in the UAE for May 2016 increased by an average of 11 per cent in comparison to April and by 6 per cent from January 2016.

UAE petrol prices

AED / litre

The Ministry of Energy increased fuel prices further for June with Super 98 at AED1.86/litre, Special 95 at AED1.75/litre and E Plus91 at AED1.68/litre. The diesel price was increased to AED1.77/litre for June.

0.4 55

USD/EUR

USD/GBP

May-16

Feb-16

Nov-15

Aug-15

May-15

Feb-15

Nov-14

• Any interest rate increase in the United States is expected to tighten monetary policy in the UAE and other GCC countries, though given the result of the vote in UK, it may be delayed.

0

Aug-14

• In May, the UAE Central Bank announced a change in the way EIBOR is calculated. The rate previously reflected the cost of banks lending to each other and now includes costs of deposits from large clients.

May-14

0.2 50

USD/INR Source: Cavendish Maxwell research

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Abu Dhabi Residential Market Report - Q2 2016

Investment climate Figure 7

FDI in Emirate of Abu Dhabi- 2014 17

Real Estate

%

.3

As per 2015 estimates, total Foreign Direct Investment (FDI) in the Emirate of Abu Dhabi registered a growth of 8.9 per cent to reach AED88 billion against AED81 billion in 2014.

%

29

Manufacturing 8.7%

Finance and Insurance Electricity, Gas, Water, Waste Management

• In 2014, the overall growth of FDI in the Emirate of Abu Dhabi grew by 12.8 per cent to AED81.1 billion, compared to AED71.9 billion in 2013.

Extractive Industries (incl. Oil & Gas)

2%

10.

• European countries had the biggest contribution to FDI in 2014, with 40.7 per cent of the total. Austria, France and UK led the foreign direct investments in 2014 at AED9.5 billion, AED8.9 billion and AED4.5 billion respectively. Asian non-Arab countries were second with investments of AED8.0 billion in 2014.

• The real estate sector continued to attract the highest amount of FDI in the Emirate of Abu Dhabi at AED23.5 billion or 29 per cent of the total for 2014.

The blueprint for the Abu Dhabi Plan, aimed at transforming and diversifying the economy, was unveiled in June.

19

.1

15 .7%

Others

%

Source: Statistics Centre - Abu Dhabi

Figure 8

Doing Business Frontier Score - 2016 Resolving Insolvency Enforcing Contracts Trading Across Borders Paying Taxes Protecting Minority Investors Getting Credit

• The plan sets out five sectors of focus, including social development, economic development, infrastructure and environment, security, justice and safety, and government affairs. Under these, 25 key objectives and 83 programmes have been laid out.

• The Abu Dhabi Plan is aimed at improving tourism, transport, health, education, women’s empowerment, Emiratisation, judicial system, business, property, renewable energy, information and communication technology, media, financial services and insurance.

As per World Banks’s Doing Business Report 2016, the UAE was ranked 31 among 189

Registering Property Getting Electricity Dealing with Construction Permits Starting a business

0 MENA Average

20

40

60

80

100

UAE

Source: World Bank The distance to frontier score shows how far on average an economy is at a point in time from the best performance achieved by any economy on each doing business indicator since 2005 or the third year in which data for the indicator were collected. The measure is normalized to range between 0 and 100, with 100 representing the frontier.

economies for ease of doing business.

• The report highlighted that in 2016 the UAE made certain business reforms that improved rankings such as streamlining the process for obtaining civil defense approval for construction permits, implementing electronic service of process for enforcing contracts, introducing a new case management office within the “Smart Petitions” service allowing litigants to file and track motions online.

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Expected VAT revenue generated as a percentage of GDP

2.00

4,000

1.00

2,000

0.00

0

Aldar

Eshraq

RAK Properties

General Index (ADI)

Jun-16

6,000

May-16

3.00

Apr-16

• Rated AA by global agencies Moody’s and Standards and Poors, the bond issue has been received as a welcome move to diversify beyond oil revenues and plug the budget deficit to a certain extent, which the Abu Dhabi government estimates to be AED36.9 billion in 2016.

Share Price Performance

Mar-16

• The bond issue was mostly subscribed by foreign investors, with at least more than 40 per cent of them being Middle East investors. At least half of the issue was subscribed by banks.

Figure 9

Feb-15

Abu Dhabi issued USD5 billion worth of bonds in May, the first since 2009. The sale consisted of USD2.5 billion tranche of 5-year bonds and USD2.5 billion tranche of 10-year bonds priced at yields of 2.218 per cent and 3.154 per cent respectively.

Source: Tax Policy Reform in the GCC Countries: Now and How? – IMF

Jan-15

• Finance ministers of GCC member states held an extraordinary meeting in June in Jeddah to approve in principle the treaties for the collection of excise tax and VAT on 1 January 2017 and 1 January 2018, respectively. The common treaties are expected to be announced in Q4 2016.

VAT rate of 5% 1.6% 1.4% 1.4% 0.8% 1.6% 1.5%

VAT rate of 3% 0.9% 0.8% 0.9% 0.5% 1.0% 0.9%

Dec-15

• The VAT and excise tax introduction in the region is aimed at generating additional revenues and reducing reliance on hydrocarbon.

Country Bahrain Kuwait Oman Qatar Saudi Arabia UAE

Nov-15

During Phase 1 of the Value Added Tax (VAT) rollout in the UAE, companies with annual revenues over AED3.75 million will be required to register under theVAT system and will accordingly be taxed.

Manazel

Source: Abu Dhabi Securities Exchange

• The federal cabinet is expected to approve a national draft law in the later part of this year to issue debt at a federal level on international markets by end of 2016.

Figure 10

Merger talks between the National Bank of Abu Dhabi and First Gulf Bank fuelled more than USD4 billion gains in Abu Dhabi banking stocks in 1 day (on 19 June). The merger, if executed, could create one of the largest lenders in Middle East with nearly USD170 billion in assets.

• Overall liquidity among GCC banks had begun weakening from the second half of 2015 and is expected to continue for the remainder of 2016. The Liquidity Support Facility on Central Bank of the UAE Balance Sheet has reduced from AED514 million as of June 2014 to AED214 million in March 2016.

• The Real Estate sector index (ADRE) on Abu Dhabi Securities Exchange was 16 per cent higher at the end of May compared to the start of the year.

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Real Estate Sector Index Holdings Value by Nationality

75%

UAE

25%

Saudi Kuwait Bahrain Oman Qatar Others

8.8% 4.8% 2.7% 1.0% 0.8% 6.9%

Expat

Source: Abu Dhabi Securities Exchange

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Abu Dhabi Residential Market Report - Q2 2016

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Abu Dhabi Residential Market Report - Q2 2016

Price performance Apartments Apartment prices in Abu Dhabi registered modest declines of 0.2 per cent on average during Q2 2016, with 12 month declines averaging 4 per cent in investment zones.

Figure 11

• 12 month changes in apartment prices ranged from 3 to 5 per cent declines across investment zones in Abu Dhabi, lower than the 6 per cent average drop in apartment prices in Dubai.

Abu Dhabi Residential Prices vs. Oil Oil (USD / barrel)

150

1,200 1,150

100

1,100 50

1,050 Q2-16

Q1-16

Q4-15

Q3-15

Q2-15

Q1-15

Q4-14

Q3-14

Q2-14

1,000 Q1-14

0

AED per sq. ft.

• Average residential prices in Abu Dhabi investment zones have declined nearly 7 per cent since highs in Q2 2014. Market direction has largely imitated oil price drop during the last 2 years. Even as crude prices reached near USD50 per barrel levels in Q2 2016, uncertainties still remain over low oil prices and will continue to impact residential sale prices in the medium term.

OPEC Basket Crude Oil Price USD/barrel WTI Crude Oil USD/barrel Brent Crude Oil Price USD/barrel Abu Dhabi Average Residential Sales Rate (AED psf) Source: Cavendish Maxwell research Figure 12

A pa rtm ent p r i ce p e r f o r m a n c e -0.2%

-0.2%

0.0%

-0.2%

-0.3%

-0.3%

Average price (AED per sq. ft.)

1600

-1.0%

1400

-1.5%

1200

-2.0%

1000

-2.5%

800 -3%

600 400

-3%

Q1 2016

-3.0% -3.5%

-4%

-4.0%

-4%

200 -

-0.5%

% change

1800

-4.5% -5%

Saadiyat Beach Residences

Q2 2016

Al Raha Beach

-5.0% Al Reem Island

QoQ % change Q1 2016 - Q2 2016

Al Ghadeer

Al Reef Downtown

12 month % change Q2 2015 - Q2 2016

Source: Property Monitor Index

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Villas Villa prices in Abu Dhabi investment zones registered an overall average drop of 0.3 per cent in Q2 2016 and a 3.6 per cent decline on average over the last 12 months, similar to that of apartments.

• Villa prices at Al Raha Gardens declined by more than 4 per cent in 12 months, though the quarterly decline was a modest 0.1 per cent.

• Investment yields for villas in Al Raha Gardens and Al Reef areas continue to remain attractive at rates of 6.7 per cent on average.

• Areas such as Yas Island have seen new off-plan villa supply being added with Aldar’s project Yas Acres being launched in Q2 2016 at prices starting from AED2.5 million.

• There is still a wide gap between the strong demand for high quality villas and the existing supply, keeping the price declines in Abu Dhabi investment zones at a much lower rate than in Dubai.

Figure 13

V il l a pri c e p e r f o r m a n c e -0.1%

Average price (AED / sq. ft.)

1,600

0,0%

-0.1% -0.3%

-0,5% -1,0%

1,400

-1,5%

1,200

-2,0%

1,000

-2,5% 800

-3.0%

-3,0%

600

-3,5%

-3.5%

400 200

-4,0% -4.4%

-4,5% -5,0%

0 Al Raha Gardens

Q1 2016

% change

1,800

Q2 2016

Al Reef Villas

QoQ % change Q1 2016 - Q2 2016

Saadiyat Beach Villas

12 month % change Q2 2015 - Q2 2016

Source: Property Monitor Index

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Abu Dhabi Residential Market Report - Q2 2016

Rent performance Figure 14

Apartments:

Apartment rents declined 0.5 per cent on average during Q2 2016, with 2 bedroom properties registering a higher decline than studios and 1 bedrooms.

Apartment rents - Q2 2016 200,000

• Studio rents declined by 0.7 per cent in Al Ghadeer, while they remained largely stable in Al Reem Island.

• 2 bedroom apartments in Al Raha Beach and Saadiyat Beach residences witnessed 1 per cent declines in Q2 2016.

AED per annum

160,000

120,000

• Low oil prices and job losses in the oil and gas and construction sectors have impacted demand. However, average declines have reduced marginally from the first quarter when rents had fallen between 1-2 per cent.

80,000

40,000

QoQ % Change

-

-1% 0% 0%

-1% -1%

-1% -1% 0%

0% -1% -1%

0% -1%

Al Ghadeer

Al Raha Beach

Al Reef Downtown

Al Reem Island

Saadiyat Beach Residences

Studio

1 bed

2 bed

Source: Property Monitor Index

Figure 15

Villa rents - Q2 2016

Villas:

Villa communities in Abu Dhabi investment zones have witnessed declines similar to apartments at 0.5 per cent on average.

600,000

500,000

• Villas in Al Reef have registered marginal growth of 0.5 per cent in the 4 and 5 bedroom categories, reaching AED167,000 and AED174,000 this quarter on average. The area is competitively priced in comparison to other areas.

• The Hidd Al Saadiyat luxury villa development featuring 461 villas is due for handover in Q4 2016. It is expected to impact rents at the higher end of the market.

400,000

AED per annum

• Saadiyat Beach Villas declined more than properties at Al Raha Gardens and Al Reef, with a 1.3 per cent drop in Q2 2016.

300,000

200,000

100,000 QoQ % Change

-

-1%

0%

0%

Al Raha Gardens

3 bed

4 bed

-1%

0%

Al Reef

1%

-1%

-1%

-1%

Saadiyat Beach Villas

5 bed

Source: Property Monitor Index

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Residential supply Q2 2016 Completions:

Pipeline Supply:

Approximately 570 residential units have been completed in investment zones of Abu Dhabi in Q2 2016.

As of Q2 2016, there are 3,100 additional units set to enter the market in investment zones in H2 2016.

• Completed units in the second quarter include all apartments located in Rawdhat area of the city and Shams within Al Reem Island. Other areas with project completions within the first half of the year included residences on Airport Road and Mohammad Bin Zayed City, as well as villas in Najmat area of Al Reem Island.

• The key location for upcoming supply in H2 2016 is Al Reem Island.

The majority of the supply (over 90 per cent) is apartments.

• Nearly 11,000 units are expected to be added to investment zones between 2017-18, of which 76 per cent are apartments.

• 66 per cent of the completed units in the first half of the year were delayed from 2015, while 23 per cent were delayed from the beginning of the year to the second quarter.

Figure 16

Ab u D habi R e s i d e n t ia l S u p ply 2 0 1 5 - 2 0 1 8 260 258 256

6,000

254 252

4,000

250 248

2,000

Cumulative supply (‘000)

Additional Units (investment zones)

8,000

246 Cumulative supply

2015

2016

2017

2018

244

Pipeline supply Source: Cavendish Maxwell Research

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Abu Dhabi Residential Market Report - Q2 2016

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 Research and Advisory Cavendish Maxwell 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

Core services

Market Research

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Asset Management

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Site Analysis

Disclaimer © Cavendish Maxwell Real Estate Consulting 2016.

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 Real Estate Consultancy, in respect of the accuracy or currency of this information. Cavendish Maxwell Real Estate Consultancy does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.

© Cavendish Maxwell 2016

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PROPERTY SERVICES MIDDLE EAST & AFRICA Jay Grant MSc IRRV (Hons) Chairman M: +971 50 192 1658 E: jay.grant@cavendishmaxwell.com

Nigel Armstrong FMAAT Chief Executive Officer M: +44 7825 168 638 E: nigel.armstrong@cavendishmaxwell.com

Miles Phillips BSc (Hons) MRICS ACIArb Partner Head of Operations - UAE M: +971 56 604 2750 E: miles.phillips@cavendishmaxwell.com

Jonathan Brown BSc (Hons) FRICS Head of Abu Dhabi Office M: +971 50 940 3540 E: jonathan.brown@cavendishmaxwell.com

Amit Shukla Senior Associate Development Advisory and Real Estate Research M: +971 56 360 3540 E: amit.shukla@cavendishmaxwell.com

Manika Dhama BA (Hons), MBA Research Manager

M: +971 50 482 7938 E: manika.dhama@cavendishmaxwell.com

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