How is the Real Estate Property Market in the UAE?

UAE Property Market Trends update

UAE property market is witnessing fluctuation from the previous few years. At the beginning of 2018, the market observed a 9.6% decline in sales prices. But within the next-quarter of the same year, improvement started and real-estate’s companies with aims to enhance their business acquired more “aggressive and imaginative approaches” to grab more fruitful deals. The competition was strong, until COVID-19. But currently; the market is already at a brink of facing another crisis. But, for many; it’s an opportunity, good time to invest.

Let’s discuss a overlook, how the UAE’s Real Estate property market is expected to perform and faces post-COVID-19 business competitiveness.

A Market Overview (2018-2019)

At the start of 2018 UAE property market faced crises of lower prices and sales backed by the lowest-market of oil in terms of prices. The total downfall was 9.6% in the total UAE market. However, even the hospitality industry; which is one of the most attractive sectors also faced the same crises with a hotel occupancy rate of -1.4% only. Although, it was the hard-shift in a global context but, the industry performed strongly.

UAE-Property-Market-2020

Figure 1: international monetary fund- GDP Projections

According to Goldstein Research, “Milestones such as Expo 2020, an introduction to VAT, and other factors played a vital role in improving market situations”.

Furthermore, this forecast from Goldstein also silver lines the growth at a CAGR of 7.4% between 2018-2025. Also, in the same year, the research forecasted, a revenue of USD 132.5 billion by the end of 2024, linked closely with tourist markets, and foreign investments in the real estate sector.  In 2018-19, with the announcement of new laws developed for the ease for investments and the other mega constructions projects; the sector observed the best growth standards.

In Dubai, last year, The DLD (the department of Land & Property), announced a Real-estate Self-transition (REST) platform (a part of Dubai 10x Initiative). This platform allows the digital management of all properties related to transition, while also accessing the other services. The final positive indicator of a growing real estate market is the highest amount of transitions recorder in the last ten days of 2018.  The DLD recorded a total “2081 transitions” related to real-estate market which accounted for AED 19B from 17-30th December.

2019 – What’s happened?

Moving towards 2019; it was a year when the real estate’s market is categorized by Optimism. The rate of decile was as expected was slower than in previous years. However, the long-term outlook in 2019 was positive. The previous few years of decline make this “an auspicious condition” for investors and tenants to invest. Lower-prices increase the volume of buyers and provided tenants with a chance to upgrade their home and buy premium properties at lower prices. Another thing that makes 2019 an advantageous year; was the payments plan options, introduce to make it more affording for end-users.

In 2019, and 2020 developments are becoming more all-inclusive and encompassing as the developers expected to adopt newer trends like “Master Plan Communities”. These master’s plans are developed to ensure that properties are not only made for rental purpose infect tenants want to purchase for themselves. More developments like these are under constructions while some had the completion date of 2019-20.

Macroeconomic Overview

UAE’s Central Bank showed that UAE’s GDP is increased by 2.3% in 2019, (up to 1.7% in 2018). Looking ahead, the projections of 2.2% in 2020, before slightly t0 2.1% according to data from oxford economics. The growth is predominantly arising in a result of an increase in performance of hydrocarbon sector which had growth of 2.8% in 2o18, and 4.9% in 2019, while the non-oil sector had slower growth rate also.

On the other hand, residential properties in Abu-Dhabi & Dubai are fell by an average of 6.5% in 2019 last quarter. For the future, the delivery of upcoming projects in Abu-Dhabi and Dubai will spur -substantial growth in the sector. Over 8500 units are likely to be delivered in 2020, highest since 2013.  As predicted in 2020, rents will decline and overall markets are fortunate for rents.

Dubai VS Abu Dhabi

UAE-Property-Market-2020-2

Figure 2 Prime Rental Clock 2019- JLL Research.

Dubai’s all residential properties index (RPPI) fell by 6% during February 2020, the 59th consecutive month of declines according to Reidin.com. When adjusted for inflation, the Dubai house price was fell by 5.01%

Dubai’s all-residential property price index (RPPI) fell by 6% during the year to February 2020, the 59th consecutive month of y-o-y declines, according to Reidin.com. When adjusted for inflation, Dubai house prices fell by 5.01%.

UAE-Property-Market-2020-3

Figure 3 Prime Rental Clock- JLL Research

The current situation is depressing for the real estate market. There was a 7.62% y-o-y decline in Abu Dhabi’s residential properties price index in February 2020. When adjusted the prices felt at 6.65%.

The enormous excess & supply of apartments is pulling the values down. In Dubai, more than 35,000 units completed in 2019. In Abu Dhabi, around 4,000 new units added; making the total up to 261,330 units.  

COVID-19 – Any Impact on Real Estate Property Market?

As COVID-19 spreads out, it starts causing problems for whole Arabic peninsula, especially for GCC countries. Here are GGC markets, Tourism, Hospitality, and real estates are the backbone of the economy. Strict lockdowns imposed; flights operation completely banned with no new incoming. The situation went more serious; when the pandemic spread out in local cities like Dubai, Abu Dhabi, Sharjah and other emirates.

With this COVID-19, the industries that are more likely to lose potential were aviation’s, tourism, automotive, retails, constructions and real estate. On the other side, the winners are the Healthcare, Services, Delivery based work, Food Processing, Agriculture & Livestock’s, Information Technology, Freelance markets, and Communications Technology.

UAE-Property-Market-2020-4

Figure 4:Empty streets in Dubai during the 24-hour sterilization program.

Although the time has already passed, the UAE’s real estate market is projected to face a strong headwind in future as well. Moreover, there is uncertainty in the market for the movement. Therefore, it’s hard to predict the future with more accurate estimations.

If this Pandemic Sustains, it will have cascading effects on the real estate markets. All the operations halted almost for the short-term. Even the Expo2020 got cancelled for at least for the next 12 months. But Upon lifting of the restrictions, the property transitions are expected to gain movement quickly but with uncertain figures.

According to KPMG – What will happen for UAE Real Estate Market?

Dubai real estate markets are facing very challenging environments; the Dubai real estate sector is impacted with a slew of these unprecedented events”.

Furthermore, According to that report,

“Dubai’s real estate sector is facing a significate challenge in the current business environment. While the demand may be down, industry leaders and governments are busy in developing the plans which are meant to keep developers and SME’s developers more engage”.

Even with all these developments, the prices would stay calm during 2020 due to COVID-19. The federal stimulus in the UAE was ADE 100 billion packages announced by the federal governments. The primary aims of this package are to deliver in terms of reduction of fees, supports for corporate and retail customers, monetary stimulus, and easing many other regulations in support of its Small-Medium Enterprises. 

Real Estate Forecast 2020

Even during the best days, the property markets are expected to be very delicate and can be stressful to attempt even for the most season investors. For many who are interacting for the 1st time renting a new apartment can often feel awe-inspiring.

Economies all over the world are facing tough competitions. Few are already on a brink to get collapse financially. Even some might need a bailout plan, but UAE’s economy is likely to get a contract by 4.5%-5% this year due to pandemic and lockdown measure introduce to maintain the social distancing.

A report from world bank states that

“UAE’s economy will grow with 1.4% rate, attributed with the growth of non-oil sector after the restriction will be eased”.

Covid-19 and fluctuating oil prices are responsible for this slow recovery because the importers are already facing the spillover of weakening economies and other disruptions.

The immediate focus for many companies was Expo2020, now that had also been postponed till 2021. Companies now are re-modelling their businesses.  

Why it’s the best time for Investment?

If you’re a buyer now almost all the facts are in, you favour now,

But why it’s the right time to Invest?

  • Low-Mortgage Interest rates
  • Higher Loans to values available.
  • Affordable Properties Sales prices
  • Lesser Services Charges
  • Attractive Evaluations

“Investing during a time of Uncertainty is exactly the sort of time where the opportunity can reveal itself”.

  • Richard Paul, Head of Strategic Consultancy at Savills Middle East

The recent reports suggested that Dubai’s properties are supposed to trajectory downwards until the end of 2021 or 2022. The economies are still weak, also the issues of oversupplies are already taken places.

 “We will see a reduction of 10% in 2019 and a reduction of 5% in 2020”. A local Analyst.

To avoid “full-Stop” at real estate markets, developers are now shifting towards affordable projects from high-end. This trend will also continue through 2020. Developers are now offering multi-layers payments plans, i.e.  60% payments after the purchase with the ultimate goal to turn tenants into buyers.

Right Time for Investment & Right Polices

Off-Plan Properties for UAE Real Estate Property

Last year off-plan properties are accounted for 23,643 transitions which are 56% of total sales values. Many elements are participants in this progressive decision, for examples governates police, visa conditions, that why in the start of 2020, these transitions arose 33% more than the previous year, 76% of total sales.

UAE-Property-Market-2020-5

Figure 5: Mordor Intelligence

The governments are already offering strong off-plan protection for buyers. For example, Abu Dhabi, according to recent law about real estate (No. (3) of 2015) appoints Abu Dhabi’s Municipal Affairs (DMA) as real estate regulator, will able to performs the same operations like Dubai’s RERA.

Better Policies for Visitors in Dubai and UAE

New rules for the practitioners are announced, which allows expects to live, purchase, and invest in properties. The investors & owners can enjoy 100% ownership of their business. The visas can automatically introduce. 

For instance:

–         5-year Visa

–         10-year Visa

The ownerships rule in Dubai and the UAE

The ownership rules are now very liberal. Expats are now allowed to buy properties freely, GCC Nationals are allowed freehold ownerships anywhere in UAE. Most buyers can enjoy more liberty to purchase

Rental Yield’s in Dubai and UAE

“There are opportunities to be a catch- Invest for rental yields, they’re still Moderate to Good”.

The gross rental yields are still good in the UAE and accounted for 6.6% in February 2020.
According to Reidin.com
“The rental yields in Dubai showed lower but it’s still good to maintain the gross rental yields”.

UAE-Property-Market-2020-6

There are other positive indicators as well, as the increase in oil prices, rising interest of Chinese investors, and recent policies shifts to attract new investments globally. Moreover, having said that those who want to invest in UAE’s properties “it’s the right-time with several options with the lowest prices”.

Conclusion- (The final Thought)

Like many other markets, UAE’s real estate market had also faced the challenges as a part of the global financial crisis in the year 2008, at the same time the UAE government made the most mature decision to fight that financial crisis. That maturity made the UAE market resilient enough to bear the loss of COVID-19, and very next-level of steps are being taken on time to cater to the goals.

However, recovery for many economies are likely to prolong, but certain segments are likely to recover with the great pace. These include tourism, Real estates, aviation and many others. For those who thought of investing in UAE markets, now is the perfect time to do it under the supervision of government-sponsored programed.

To move forwards, buyers and investors had to adopt new strategies that are evolving according to situations and post COVID realities. Off course, consumers markets are expecting to gain more profits but in-terms of investors and individual buyers, this is the best movements to them to invest.

However, the balance of supply chain should be kept in mind along with demand generation capacities, Loan Management and Forecasting, Credit funding & Management, the digitalization of real estate sector’s, and more study on minimizing valuation risks.

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