UAE Real Estate Market Adjusted to The “New Normal” in 2017

0
2458

UAE residential market summary

Dubai residential market summary

Supply

Emaar Properties’ USD 1.5 billion initial public offering (IPO) of its United Arab Emirates development business was headline news for Q4 2017 (being the largest since the IPO of Emaar Malls in 2014). Emaar launched a number of new off plan projects in 2017, a trend that extends to the wider residential segment, where supply is increasing ahead of demand. By 2020, a total of 570,000 units of new supply could enter the market, representing an average annual increase of 8%. According to Oxford Economics, Dubai’s population is expected to grow an average of 3% per annum, this undoubtedly suggests that market absorption rates will be less than the levels of new supply and thus a large number of residential units may be left vacant.

Residential stock in Dubai is estimated at approximately 491,000 units at the end of 2017, with apartments accounting for more than 80% of total supply and reached approximately 403 thousand units, while villas reached 86 thousand units. Key projects which were completed include Duja Tower in Trade Centre (679 units), and The Polo Residence in Meydan (598 units).

Looking ahead, the near completion of a number of residential developments, including New Dubai Gate in JLT, The Pad in Business Bay, Eagle Heights in Sports City, Serenia Residences on Palm Jumeirah, will likely see up to 17,000 quality apartments enter the market in early 2018. Actual completions are likely to be far less (assuming a materialization rate of around 40%).

Performance

The Dubai residential market has weathered many cycles from growth (2001-2008), to decline (2009-2011), to recovery (2012-2014), to its current status of soft landing. The recent activity in the market suggests that confidence has returned to both investors and developers, however it is worth noting that the number of new launches are significantly below their peak levels in 2006/2007 and the volume and the value of sales are also below levels recorded during 2013/2014.

Both sales prices and rents declined over the year, but the rate of decline has slowed down over Q4 (an average of 1.6% across all segments). As the market absorbs additional units, it is expected that prices will continue adjusting (downwards) with occupancy levels following a similar trend as supply growth outpaces potential demand.

Abu Dhabi residential market summary

Supply

There were 3,000 residential units delivered in Abu Dhabi during 2017, with 88% of completions being apartment units bringing the total stock to approximately 251,000 units. Key projects delivered included Sigma Towers 1 and 2, which are located on Reem Island. The first phase of Hidd Al Saadiyat, in addition to Wave and Al Jazeera Towers on Corniche were also completed.

The future supply is expected to shift to the New Islands (Saadiyat Island, Reem Island, Yas Island and Raha Beach), comprising more than 60% of projects currently under construction. By 2020, 12% of the total residential supply in Abu Dhabi will be on New Islands, compared to 8% in 2017. This trend is predominantly driven by the high number of apartment completions on both Reem Island and Al Raha Beach.

Limited future supply is expected to enter within the main Abu Dhabi Island representing approximately 57% of the total residential supply in Abu Dhabi in 2020 compared to 62% in 2017.

Performance

Both apartment and villa sales prices saw slight declines over the last quarter of 2017, while rental indices remained flat for both residential segments. Investor sentiment has been negatively impacted since 2014 when oil prices started declining.

The introduction of VAT in January 2018 is expected to add further incentives to potential buyers in the form of more generous post-handover payment plans. This is because the upcoming VAT regulations on residential sales offers developers a zero-rate on all residential sales within three years of the completion of a project. Any home sale done after three years will be subject to the 5% VAT.

Sharjah Residential Market Summary

Supply

Congestion in the older residential locations in the western parts of the Emirate along the coast and the development of new residential communities within Al Juraina, Al Gharayen and Al Nouf has led a significant shift in population to more eastern locations. The establishment of the University City and industrial area within Al Saja’a suburb has further stimulated the expansion of Sharjah City towards the east.

The other major change in the Sharjah residential market results from changes to the property ownership laws introduced in 2014 to allow non-Arab expatriates to purchase property in selected projects. This has resulted in the development of a number of master-planned residential communities for sale, including Al Zahia, Tilal City, Nasma Residences, Al Mamsha, Aljada, and Sharjah Waterfront City.

The vast majority of the residential units in Sharjah are apartments (89%), with only 11% of the current stock comprising villas.

There have been announcements to construct around 30,000 additional residential units across Sharjah in coming years. However, as most of these projects have not yet announced details of their phasing, it is not possible to identify how many of these units will be delivered over the next 2 years.

Performance

Following a marked decline in 2016, the average price of apartments sold in Sharjah has remained largely unchanged during 2017 (shifting by less than 1% for any sector in the year to Q3 2017). Prices have been supported by an increase in sales activity due to the release of units for sale in several new projects during the year.

Unlike sale prices, rentals in Sharjah have continued to decline (by between 6% and 10%) over the year to Q3 2017. This decline has been largely driven by softening of rents in Dubai, which has reduced the movement of tenants from Dubai to Sharjah coupled with low market sentiment. Sharjah continues to be an affordable residential destination, with average apartment rents 30-40% lower than comparable mid-market products in Dubai.

LEAVE A REPLY

Please enter your comment!
Please enter your name here