Covid-19 has been the ultraviolet light that exposed all blemishes and the accelerant that forced overnight innovation to hasten healing.
The UAE government moved fast with free visa extensions, ensured liquidity and encouraged banks to offer loan repayment holidays to individuals and businesses.
The country's property and construction sectors were already oversupplied and in the midst of a near six-year decline when the pandemic hit and hit hard in the first quarter of 2020.
A timely 5 per cent increase to mortgage lending limits across the board was introduced in March. Abu Dhabi went further, removing property and mortgage transfer fees. It was a good move that targeted those already here who wanted to stay and buy, and those who needed to finance a property handover purchased off plan.
The reform gave the real estate sector a much-needed lift – and momentum is building.
Mortgage transactions, at historic lows during the movement restrictions in April and May, saw month-on-month growth thereafter, driven mainly by end users spurred by record-low mortgage interest rates. By September and October, the UAE saw the highest number of mortgage transactions in the last three years, according to Property Monitor.
More positive news was to come. A quarterly uplift arrived in Abu Dhabi villa prices, according to REIDiN third quarter data. And there’s been anecdotal evidence from several sources of bidding wars in some established villa communities in Dubai.
However, while the increase of loan-to-value ratios has undoubtedly helped, they fell short of support measures seen in Europe and elsewhere which kept people employed and businesses afloat. The measure obviously was not able to stop the job losses across the UAE, which inevitably led to year-on-year property price declines as demand ebbed.
The bigger picture is that UAE property prices have been falling for over six years. A period which has seen hyper-inflation in asset values across the world, Abu Dhabi property prices are 31 per cent lower, while Dubai prices are down 33 per cent from their 2014 peaks. And accounting for inflation, both are now below their 2009 post-Global Financial Crisis lows.
With a buyer’s market, expats have flocked to the UAE in world-record numbers. But to fill the world’s tallest skyscrapers, new cities off the coast and thousands of hectares of reimagined desert, hundreds of thousands of them need to stay and plant roots.
The UAE has come a long, long way in a very short space of time.
What’s been achieved in the past 20 years has been nothing short of miraculous. And these supply and demand mismatches and price volatilities can be largely attributed to trying to do so much, so quickly in a small market highly vulnerable to international market fluctuations. Regulation often plays catch-up and no amount of government action can smooth what can be very choppy international waters.
The question remains whether the UAE can attract enough investment to achieve its objectives without offering expats some type of permanent residency.
UAE property prices have been in decline since oil fell below $80 per barrel. Oil revenues still represent about one third of GDP (down from 60 per cent in 1975) but without strong oil prices underpinning the economy, it may be difficult, at least in the short-term.
To combat this, the UAE authorities have introduced a number of new visa categories targeting longer term expats. The most recent, a retirement visa for those aged 55-years and over, is a five-year renewable visa. Introduced in September 2020, it follows the Golden Visa that offered five- and 10-year residency options introduced in 2019. In isolation neither are likely to be game changers – but they are firm steps in the right direction.
Meanwhile, the Higher Committee of Real Estate was an initiative launched by Sheikh Mohammed bin Rashid Al Maktoum in 2019 to control supply and improve market confidence. Since then we’ve seen a dramatic slow down in project launches. Just 4,800 freehold units were launched in Dubai in the first 9 months of 2020 - their lowest levels since 2012.
Although we are unlikely to see the stringent building restrictions of mature markets anytime soon in the UAE, allowing the market time to absorb the current supply over the next five years is crucial in stabilising property prices.
In 2021 and beyond there will be some tough challenges and no easy solutions. But they will be overcome with patience, vision and proper planning. These measures are all clear steps in the right direction that will help stabilise the property market. Let’s hope we see more.