High oil prices, an influx of residents from troubled Middle Eastern hotspots and robust performances in key industry sectors have all contributed to the rejuvenation of the UAE’s real estate market. “Now is not a good time to invest in property. Now is the best time to invest in property,” says Ziad El Chaar, Managing Director, Damac, a sentiment echoed by prominent real estate stakeholders across the country.
Such optimism is not without foundation. A recent Jones Lang Lasalle reports that hotel, residential and retail sector rates are witnessing accelerated growth, having ‘bottomed out’ at the same stage last year.
The outlook remains positive, what with Dubai’s economy predicted growth between 4 and 5 per cent this year, Abu Dhabi’s nominal GDP up by 29 per cent to Dh820 last year and the Business Confidence Index (BCI) currently resting at a respectable 106 points. A likely new investor protection ruling by the Dubai Land Department is further testament to the effort going into reviving the emirate’s property market.
Realistic terms
Khalid Al Malik, Group CEO, Dubai Properties Group (DPG), says that there is now a more robust and sustainable framework for investing in real estate. “For example, we have seen financial institutions offering attractive packages to continue to encourage real estate investors, but with higher deposits and shorter repayment periods to ensure the loan terms are more realistic and can ultimately be paid back,” he says.
And with Abu Dhabi and Ras Al Khaimah becoming more encouraging markets for tenants, it can be argued that the UAE’s property market is bouncing back. The capital alone is scheduled to add up to 238,000 units in the residential sector, mostly for master-planned developments such as Saadiyat Island and Rawdhat. And in March RAK announced their astonishing plans for the highly-anticipated $1-billion Real Madrid Resort (set for completion in 2015). “What happened in 2008 was not a real estate crash. It was a financial crash that tremendously affected the real estate market. But the fundamentals of demand were not affected. The liquidity from the market simply dried up suddenly. Now liquidity is easing up and prices are more accessible, with more new people entering the market,” El Chaar says.
However, property developers’ ebullience may be misleading, says Anirudh Ray, former CEO, Steiner India. Ray says the market is not booming by any yardstick.“Right now, the UAE market is stagnated. It is still not fully stable. It is not as bad as 2008, but it’s not anything to shout out about either,” she says.
And looking at the property market’s recovery in context, Ray says the numbers fleeing to the UAE for a Middle Eastern safe haven, while cosmetically attractive, shouldn’t flatter to deceive. “Obviously the Arab Spring has helped residential and tourist numbers and there may be investments being made, but ultimately it will all depend on the quality that is provided to the customer as to whether this can be maintained in the long run,” he explains.
Although Ray doesn’t foresee the situation weakening, there may be minor corrections in either direction until 2014, which he says will be a key year, as the global economy gets going and there’s more money circulating.
Economic direction
“When the global economy improves in early 2013 — when the [new] US government is in place — there will be a somewhat better economic direction. And only in 2014, when world growth starts again, can we judge the stability of the UAE market,” Ray suggests.
Dubai has once again been the key driver in the real estate market’s acceleration. The total value of real estate sale transactions grew to Dh140.3 billion in 2011 compared to Dh119.4 billion in 2010, according to RERA. The emirate was also recognised by Jones Lang Lasalle, in their Global Real Estate Transparency Index 2012, as the most transparent market in the MENA region.
Current residential demand shows the villa market outperforming the apartments sector — though both sectors’ sales and rental rates have been on the rise since the start of 2012. And there is increasing demand for homes in established communities such as Downtown Dubai, Emirates Hills, Arabian Ranches and Dubai Marina.
As of May 2012, villa sales indices increased by 21 per cent year-on-year and are now 9 per cent higher than early 2008. And in terms of rental rates, villa tariffs have increased by 5 per cent compared to January 2009, almost reaching peak levels.
Kenny Paul, Director of Premier Habitat, says, “The ultra-HNWIs targeted by the Emirates Hills development are increasingly looking to buy — the demand for properties on sale has increased tremendously in 2012, and occupancy levels are almost touching 95 per cent.”
Dubai’s progressive attitude towards legislation has been vital in getting the industry back up and running. “The positive developments around real estate laws and regulations have contributed to an improvement in consumer confidence.
Legal framework
According to Malik, a federal credit bureau board is now in place to establish legal frameworks for private and public sectors to develop more comprehensive strategies on loans, which will help to further strengthen and secure the long term future of lending within the real estate industry. “Also, the Escrow Law provides full security for investors and has allowed the relaunch of off plan sales,” he says.
The opposite is the point in Abu Dhabi’s case, however, according to Asteco analyst Knibbs. “The Abu Dhabi property market suffers from unclear laws and regulations that have an adverse effect on demand, and in turn on a property’s value,” she says.
Julia Knibbs, Senior Analyst, Asteco Property Management, says that with residential asking prices down by 4 per cent Y-O-Y and 51 per cent from their 2008 peak, the expected delivery of an extra 11,000 units to Abu Dhabi’s residential sector in H2 will lead to a short-to medium-term over-supply. “This is expected to lead to a further drop in rents within those market segments, in turn affecting all other products. However, given the relatively small amounts of high-quality luxury supply, we anticipate that prices at the higher end of the market, if at all, are likely to witness only marginal declines.”
But falling prices and over-supply is not exactly bad news. “The fall in prices has actually benefitted the UAE property market because earlier the prices were so abnormally high that it was affecting other industries such as tourism. When real estate prices fly off the charts, all industries get affected. So now the prices are on a more realistic level. For economic growth the real estate sector has to be in tandem with other sectors or the economy will get stunted,” Ray says.
The recovery signals a significant turning point in the way the market is approached, says El Chaar. “In 2008 the main demand was ‘I want to buy to flip’; now the demand is real. People are looking at capital appreciation now. They now know they will be holding for at least the mid-term and this is why the market is striving.”
While Abu Dhabi’s property prices slump and Ras Al Khaimah moves up, Dubai is the progressive vanguard, propping up the UAE’s real estate market as a whole. As such, sharp vicissitudes in rates and project completions from one emirate to the next are inevitable. Thus the mid-to long-term future of the Emirate’s property market as a whole is anything but calculable.
