In the 12 months to the end of Q1 2016, the value of villas across Abu Dhabi’s residential investment submarkets fell by 1.4%. This decline has pushed the average price of an Abu Dhabi villa to approximately AED 1,250 psf. While villa values for the most part have stagnated, we have witnessed a steady decline in prices for luxury homes. For example, sea view villas on Saadiyat Island registered a 4.4% decrease, deflating average values to approximately AED 2,150 psf.

In contrast, apartment prices remained largely unchanged in Q1 2016. Despite this, there has been further compression in the annual growth rate, which has slipped to 0.8%, from 1.1% at the end of 2015.

The shift in residential values reflects growing caution in the market, which is being exacerbated by low levels of housing requirements. This latest phase in the market’s cycle comes quick on the heels of the Federal Mortgage Caps, which have curbed the appetite to purchase high end luxury accommodation.

A buyers’ market?

Furthermore, with Abu Dhabi’s economic growth still intrinsically linked to the hydrocarbon sector, buyers remain conscious of the squeeze on government revenues and the subsequent drag on economic growth. Unsurprisingly, in a sentiment driven market like Abu Dhabi, house hunters are increasingly taking a ‘wait-and-see’ approach as the market transitions into a buyers’ market.

Despite this weakness, new job starters continue to trickle in from the education, hospitality and leisure sectors. And for those households on three to  five year contracts, purchasing provides greater stability through fixed payment plans, which may in some instances be cheaper than renting. However, for these groups, demand is centred on what is perceived to be affordable. In contrast, submarkets like Saadiyat Island have experienced a sharp slowdown in demand.