Following the economic crisis that iced the UAE’s property market in 2009, the long road to recovery continues.Last year the tide turned in tenants’ favour with lower pricing and rentals; however, the upside of long-term investment is that the market is evolving into a more mature animal.
The sector seems to be witnessing growth and changes that will determine investment valuations and rental trends. Geopolitical events will also continue to impact the UAE, making the finer details of property and asset management important for occupiers, developers and investors alike. According to research from leading real estate investment and advisory firm Jones Lang LaSalle (JLL), the ripple effects of the Arab Spring, the ongoing euro debt crisis and the “recent escalation of rhetoric between Iran and the West” are external challenges facing the market. The report adds, “the main trend for this year is likely to be an increasing polarisation within each sector of the market”.
Experts predict a mixed bag for the UAE’s property market this year. Since the focus will be on financial viability of projects, affordable housing will take precedence, as the emphasis on new ambitious projects reduces.
Given the slow growth continuum and the importance of financial viability in a growing realistic market, the opportunity for investment is undeniable. In a press statement, Craig Plumb, Head of Research, Jones Lang LaSalle, said, “Lower prices, more choice of higher quality products and its role as a regional safe haven will increase the attractiveness of the UAE market to both occupiers and investors in 2012.” Plumb cited affordable housing, infrastructure spending, estate management, tenant friendliness and sustainability as the key points driving the sector this year.
Vineeth Kumar, Associate Director — Agency, Asteco Property Management, says, “Buyers in the current market look for finished products that are well managed. The quality of the building is just as important as the management of the asset; ongoing service charges and availability of mortgages are other key buyer concerns.”
Asteco believes buyers have started to realise which communities are more suitable to their needs. Blind or speculative purchases for short-term gains are no longer the rule. On another note, iconic property developments have changed from tom-tomming their spectacle to positioning themselves as worthy investments. “The majority of buyers of iconic developments such as Palm Jumeirah and Downtown Burj Khalifa are end users; and properties in these developments are being bought not just for speculation but to hold for mid- to long-term use,” says Kumar.
Dubai’s investment market continues to attract interest from regional private buyers. According to global residential and commercial property consultants Knight Frank, Dubai’s residential real estate has stabilised, with house prices rising by an average of 2.3 per cent in the last quarter of 2011.
Price appreciation
Of the 52 worldwide destinations tracked by Knight Frank, Dubai ranks 12th in terms of house price appreciation. Despite this, the JLL report claims that “strong tenant covenants”, limited lending and lack of availability of good quality products have resulted in few significant sales. The Dubai Land Department reported a 14 per cent rise in total value of property transactions in the emirate to Dh142.9 billion in 2011. Meanwhile in Abu Dhabi, property website Bayut.com reported a growth of 5 per cent in property sales to Dh4.3 billion in the same time.
Attracting and retaining tenants seem to be the name of the game, as landlords of both retail and residential space offer greater incentives to retain tenants.
Future initiatives include the Executive Council-approved Dubai Urban Development Master Plan 2020, which demarcates land in the emirate for future residential, industrial, commercial, school, medical and infrastructure use.
In addition, the Dubai Land Department has introduced two initiatives — Tayseer and Tanmia — to kick-start stalled developments by improving their attraction for investors and injecting new financing via local banks. To top it off, a major new investment fund has been launched by the government’s Investment Corporation of Dubai and Canada’s Brookfield Asset Management. Each party is set to invest $100 million (Dh367 million) of equity into the $1 billion fund that will entirely be focused on opportunities in Dubai.
Capital trends
In Abu Dhabi, government-backed agencies such as Aldar and Mubadala are “rethinking their real estate agenda”, says the JLL report. As investors brace for a realty merger between developers Aldar and Sorouh, positive developments on the Abu Dhabi Stock Exchange saw stocks moving in tandem.
On the other hand, the increased emphasis on financial viability of projects across the board has resulted in the delay or scale down of projects such as the Saadiyat Island and Capital District. Nevertheless the market is slated to have an “oversupply for most asset classes” with annual rents and sales prices expected to “soften during 2012”.
Linked to the emirate’s Vision 2030 to establish a world-class urban infrastructure, the Abu Dhabi government has announced large-scale capital investment into new and existing projects. Key priorities include major infrastructure upgrades in areas including roads, railways, ports and airports, social development such as health care, education and housing communities as well as economic development.
More supply
Most investors will tell you that there is no better time to invest than when the chips are down. When it comes to the number of houses, however, it’s anything but. Nearly 25,000 new housing units in Dubai and around 20,000 units in Abu Dhabi are expected to enter the market this year. Recently, Shaikh Hamdan Bin Rashid Al Maktoum, Deputy Ruler of Dubai and UAE Minister of Finance, urged developers to slow down their housing projects in a bid to balance the market after supply sharply exceeded demand in some areas.
Attributed to a sharp rise in supply in suburban areas and people’s preference to live within city limits, the minister was quoted by the Arabic daily newspaper Al Bayan saying, “Certainly, these conditions affect any new projects and consequently the real estate sector in the country… this is because the UAE has commercial and economic relations with those countries… we expect that after the regional situation stabilises there will be several projects that will stimulate the real estate sector in Dubai and other parts of the UAE.”
In Abu Dhabi, global research consultants CBRE estimated that the residential rental rates fell by 16 per cent year-on-year, while declines on the Abu Dhabi mainland were more pronounced with a 30 per cent drop. And JLL research says that average prices are expected to decline further. Aspirational addresses are no longer a dream; an apartment in an iconic development in the UAE is now more accessible than ever before. If you’re waiting for the market to bottom out, remember that a subsequent recovery in the property market would mean a rise in prices, sending property quotes soaring, possibly out of reach.
