DUBAI 18 February 2018: In the backdrop of ongoing regional and global economic uncertainties, the UAE real estate market has proven itself resilient by adapting and evolving over the years.
Following the Global Financial crisis in 2008, which subsequently resulted in the bursting of the real estate bubble in the UAE, there were drastic declines in sales prices and rental rates across all sectors. Apartment rental rates in Dubai for example decreased by approximately 35 per cent since the peak. The fallout was even more pronounced in Abu Dhabi with a drop of close to 50 per cent as the Capital recorded the highest rental rates across the UAE pre-crisis, mainly due to the lack of supply.
Although prices continued to soften over the next 24 months, the rate of decline slowed as the UAE was still considered a ‘safe’ haven and good investment option in the midst of the Arab Spring and Euro Crisis.
During the period of June 2011 – March 2013 apartment rental rates in each Emirate bottomed out with Dubai initiating the start of this new real estate cycle and Sharjah falling in line last.
Whilst the Northern Emirates, Abu Dhabi and Al Ain had yet to reach their market low, Dubai recorded steady increases throughout 2012, which were amplified in late 2013 with the announcement of Expo 2020.
Over the next 2 years rates in the different Emirates grew steadily and began peaking in late 2014 until early 2016, during and after which, they more or less stabilised.
Low oil prices, global political tensions (Brexit, Trump, Qatar Diplomatic Crisis) and growing real estate supply resulted in a downward trend for apartment rental rates in 2016 and 2017.
Interestingly, Sharjah recorded the shortest growth cycle of only 18 months compared with Dubai’s 3 ½ years. This is mainly due to the lack of quality supply and the large percentage of commuter-residents in the Emirate, who are often influenced by the supply/demand dynamics and market sentiment in Dubai.
Another intriguing observation is the fact that rental rates in both Sharjah and Al Ain bottomed out after their neighbours Dubai and Abu Dhabi, yet reached the top before them.
Varied Drivers
It is important to note that the drivers behind any changes in the real estate market vary in each Emirate and are not necessarily correlated to events in the neighbouring, more prominent Emirate but depend on internal as well as external factors.
Throughout 2017, Asteco noted the emergence of a number of new real estate market trends in the UAE, including the shift in demand from high-end-luxury properties to affordable mid-market units, off-plan sales preferred over completed units due to flexible payment plans and the market becoming tenant / investor-driven due to continuously increasing supply.
Growth by later this year
Looking at the year ahead, although the outlook for global economic recovery is positive, the knock-on effect may not be felt until later this year or early 2019.
“2018 is expected to follow similar trends as compared with the previous year, although the number of new project launches is likely to ease off as the market finds a new equilibrium.” said John Stevens, Managing Director, Asteco.
Diversification strategies in various areas are being implemented with a focus on promoting long-term economic sustainability and reduced reliance on oil, which is expected to stimulate employment and business growth.
Asteco expects a surge in property deliveries over the next few years as construction-linked, post-completion payment plans encourage developers to finish projects within the stipulated timeframes. Sales prices and rental rates are expected to progressively stabilise in the medium- to long-term.
“Whilst new inventory continues to increase in the UAE, it is also adding new leisure attractions and business opportunities, which will expand the market’s range of potential residents, businesses and visitors, and help drive real estate demand.” Stevens concluded.