While there was nothing much for the country's real estate sector to rejoice in 2009, 2010 has been comparatively better, especially in the third and fourth quarters, with real estate agents reporting a definite rise in the number of enquiries.
The biggest change probably has taken place in the profile of real estate customers. While investors and speculators ruled the roost in the pre-recession market, last year, we saw a clear shift in the buyer profile - from investors to owner-occupiers. Experts say although this presented a great opportunity for the market to recover from the jolt it suffered due to the crisis, tight lending conditions forced many prospective buyers to defer their decision to buy a home.
Jean-Luc Desbois, managing director, Home Matters, a mortgage consultancy firm, believes 2011 will be a good year for the mortgage sector. "The Tamweel-DIB deal will have a positive impact on the mortgage market. If DIB decides to consolidate its mortgage business into Tamweel, then in 2011, we will see a better offering from the latter.
"We also expect interest rates to come down in 2011, while loan-to-value [LTV] ratios will more or less remain the same. At 80 to 85 per cent, the LTV ratios in the UAE are good compared to most other markets. More banks are expected to come back into the mortgage market in 2011, resulting in greater availability of finance."
Once securing mortgages becomes easier than now, experts say the number of transactions will see an increase compared to the past few years. So, what is it that buyers can expect from 2011?
Will it be any better than 2010? What should a prospective buyer do - wait or buy a property? Have the prices bottomed out or are they beginning to? Will investors have any reason to be happy in terms of rental returns and capital appreciation? And finally, will the country's real estate market stage a recovery this year?
Property approached industry bigwigs with these pertinent questions to understand how exactly the real estate markets across the country are expected to fare this year.
Ryan Mahoney
Managing director,Better Homes
The general view is that sale prices and rental prices will be relatively stable. If there is a further fall or a slight rise, it will not be by much. As banks see a number of months of stable rental and sale prices, they will have more confidence to loan money at higher loan to value ratios (LTVs) and the increasing flexibility will allow for increased sales. It's hard to say when all of this will happen but I would expect it to be in the 2nd or 3rd quarter of 2011.
One important factor that will come into play this year is the establishment of homeowners' associations for many communities and properties across Dubai as it is now mandatory that these groups are formed to take control of the maintenance expenses of the various communities. These groups will provide transparency on the service costs of a property and, as a result, there will be a mass opening up of all collective property accounts.
It will be interesting for homeowners to know if they can manage the communities or buildings for less or more than the developers are charging them. Whether the service costs turn out to be higher or lower than they are currently pegged at, the important thing for investors is to be clear on their accuracy since every expense will affect their return on investment.
Year 2010 was erratic for the property market with some months witnessing a high number of transactions while others extremely low; in short, there is no clear trend. So, we have very little visibility on how 2011 will unfold. If the key drivers: supply, population, new business, financing and visas all move in the right direction, then we are in for an exciting year!
John Davis
Regional CEO and director, Colliers International’s global investment services
The expected scenario for the local real estate market in 2011 will probably reflect the way that 2010 finished off, and that is with rentals and property prices continuing their gradual decline even further. The foundation of this ‘prediction' is based on the simple economics that supply will continue to outstrip demand for the foreseeable future. With the local market still in search of stability, coupled with the lack of mortgage finance, these factors will continue to apply further downward pressure on pricing.
From our own research, we are expecting the local market to have delivered approximately 33,000 residential units during 2010, with an anticipated 25,000 new residential units expected to come into the market during 2011. The arrival of this additional supply in 2011 will only further magnify the oversupply situation in Dubai.
With regards to the commercial (office) sector, taking into account 2010's supply, the total cumulative supply stood at around 4.7 million square metres by the end of 2010, up from 3.6 million square metres at the end of 2009.
This marks a 30 per cent year-on-year increase, and with a further one million square metres of commercial office space due to come to the market this year, this supply is not expected to be absorbed for a prolonged period of time and, in turn, will lead to a drop in commercial rental rates. To sum up, what the real estate market can expect in 2011, given the amount of new supply, we foresee further falls in rental rates, in both the residential and commercial sectors, but more severely in the commercial (office) sector.
Mohanad Al Wadiya
Managing director, Harbor Real Estate
In 2011, oversupply will continue to be the prime concern of virtually everybody in the industry. Estimates vary, however, the general consensus is that between 20 and 25 per cent of the residential units are vacant in Dubai today, with at least a third of available office space also unoccupied.
While this may cause significant concern, the future supply of both residential units and office space will nevertheless continue unabated up to the end of 2012.
Having said that, the government announcement that was released in a bond prospectus posted on the London Stock Exchange website in September 2010, stating the Real Estate Regulatory Agency (Rera) will be cancelling 495 out of the 980 projects, will definitely relieve the pressure and put an end to this oversupply saga.
The good news is that there are essentially no new projects being conceptualised for Dubai today.
In 2011, the flow of credit into the property market is expected to speed its pace as more mortgage providers and investment financiers start lending again. The recommencement of financing by Tamweel is a very positive step and will hopefully encourage more lenders to start injecting liquidity to support the end-users.
In 2011, the property market in Dubai will go through the period of acceptance and renewed confidence. Dubai has learnt from the last two years and ended 2010 stronger, smarter and more mature.
For many, 2010 didn't end quickly enough and the world will be looking forward towards a more prosperous, or at least, less stressful 2011!
Chris W Boswell
Sales director, Ocean View Real Estate
Year 2011 will be good for everybody who is in some way related to the Dubai real estate market. Looking at the last 12 months, market conditions have certainly improved. Purchasers, due to confidence levels still being quite low, are no doubt going to continue to be very cautious when spending their money this year.
However, buyers who are looking to purchase for investment will still find some exceptional deals in prime areas that offer the potential of capital growth as well as a relatively decent rental yield. Buyers have options when purchasing now. There is a clear segregation in the availability: there is good property and there is, not bad, just less desirable property. That's just a clear-cut sign of a mature market.
The end-users, which Dubai so desperately need to ensure the stability and financial future and growth of this city, will also continue to source attractive property opportunities. Consumers in 2011 will find and be offered better mortgage rates by our banks and lenders, thus creating more interest and increasing real estate transactions.
Properties in areas that surround Burj Khalifa and developments located on the Palm Jumeirah will always sell or be leased. I think 2011 is a perfect time to invest as prices, for example, on the Palm Jumeirah, are lower than ever before, but yields are still reasonably high, making it extremely attractive to investors.
In conclusion, we all observed the dollar's strength begin to diminish in Q4 2010 against the pound and the euro. If this continues into 2011, we will no doubt see more money come in from other foreign markets.
Richard Paul,
Head of UAE residential valuation, Cluttons Middle East
Globally, one can see evidence of a stifled recovery. Companies which had planned to expand their operations into the Middle East in 2007/2008 were crippled by their own domestic downturn. As the global recovery continues, blue chip companies will slowly reignite their expansion plans that were abruptly put on hold and set up new commerce in the region through later stages of 2011 and continuing into 2012.
This influx of set-ups will create new jobs, which will spin off into demand for rental accommodation and within time, instill enough confidence that the demand to purchase property will return.
To reach parity between the current over-supply and lower levels of demand will take a great deal of time, something that 2011 will not achieve, especially with a potential 25,000 new residential units coming to the market.
Year 2011 will continue to see commercial and residential tenants take advantage of higher quality premises for equivalent rental levels and landlords will be forced to engage in negotiations to entice and retain rental income flows.
This year will see the banks continuing to offer more competitive interest rates, in order to win new customers and re-ignite lending. This is highlighted further by the recent announcements from Tamweel and Barclays to re-enter the residential mortgage market and offer aggressive and attractive rates.
This can only be a good thing and will hopefully provide the impetus and confidence to individuals who will be living in Dubai medium- to long-term to once again invest in quality, well located real estate.
Mike Atwell
Head of Middle East Operations, Cushman and Wakefield
In 2011, we expect to see continuing oversupply in the Dubai office market, leading to a further softening of rental rates in some areas. However, there are still locations, such as the DIFC and other major free zones where we can expect rents to remain relatively resilient.
For this reason, the Dubai market will continue to favour the tenant and landlords will increasingly need to look at offering flexible terms to attract tenants to their vacant space in 2011.
Abu Dhabi will experience an influx of new office stock in the first half of 2011, which will result in a noticeable softening of rents across the capital, with the potential for further declines later in the year as more stock comes on-stream.
For the office market in the country, the good news for 2011 is there will be plenty of opportunities for corporate occupiers to capitalise on the marketing conditions to upgrade or seek new space in top locations. That's going to be one of the highlights of this year.
As far as investor confidence in the market is concerned, we already saw signs of investors looking to secure income-producing assets in Q4 2010 and we expect investor sentiment to continue to improve through 2011.
Jesse Downs
Director of research and advisory, Landmark Advisory
In 2011, we can expect further declines in average sale prices and average rents in both the residential and commercial (office) sector in Dubai.
The primary cause is the current supply pipeline that will push up average vacancies in 2011 and 2012. The residential sector has a brighter medium-term and a good long-term future.
Of course, in the short-term, meaning the next one to two years, we still anticipate deterioration of average residential sale prices and rents. Across Dubai, we do anticipate approximately 15 per cent decline in average residential sale prices and rents.
The most significant factors that could potentially bolster the residential market are mortgage availability and the granting of long-term residency visas for homebuyers. In terms of mortgage availability, from our perspective, it appears that the majority of financing activity is for refinancing and the financing of units already sold off-plan. Second home and retirement demand remains severely restricted by the lack of a long-term residency visas granted to homebuyers.
The portion of new mortgage-backed residential sales is limited. For example, according to our transactional evidence, less than 5 per cent of transactions in the third quarter were purchased with mortgages. Until mortgage availability improves, the owner-occupier market will remain restricted.
The most interesting trend to observe will be commuter demand after the large new projects like Marina Square are handed over in Abu Dhabi. We think the commuter trend will slowly start to reverse in 2011, pick up gradually in 2012 and gain momentum in 2013.
Matthew Green
Head of research and consultancy, CB Richard Ellis
Year 2011 is shaping up to be a milestone year for commercial property in Abu Dhabi. The anticipated completion of over 0.5 million square metres of space this year is sure to have a massive impact on the overall dynamics of the market as conditions shift further in tenants' favour. A number of major projects will also be completed, with the handover of the first towers in new CBD developments such as the Capital Centre and Sowwah Square.
Commercial offices in Abu Dhabi have historically been focused on Grade B+ C quality space, but now with increasing involvement from the private sector, the market is maturing and offering true international Grade A product. Some developers have clearly started to listen to tenant requirements, offering improved facilities, adequate parking, and better quality space planning. As this better quality stock comes to the market, we can expect to see a flight to quality, with occupiers capitalising on improved levels of choice and more tenant-friendly market conditions to secure preferential deals.
The commercial market in Dubai is likely to be somewhat less buoyant, with significant oversupply continuing to impact leasing rates. A pick-up in overall economic activity during the course of the year could see some renewed office demand formalising, but the negative effects of the crisis are likely to put pay to any real recovery in fortunes. New office stock during 2011 will measure over 1.2 million square metres, adding further woe to an already oversupplied market. As such tenants will maintain their dominant position, with landlords forced to increase incentives to remain competitive.
Oversupply issues
About 25,000 new residential units are expected to come into Dubai's real estate market during 2011, which will add to the existing oversupply woes, according to Colliers International.
