The number of completed property deals in Dubai has tumbled by more than two-thirds, according to JLL.
In its Dubai Q2 Market Report, the firm’s Mena head of research Craig Plumb said Dubai Land Department figures show a 69 per cent drop in residential transactions during the first half of the year, with 7,400 deals completed, compared to 23,800 in the same period last year.
The aggregate value of sales also dropped by 66 per cent to Dh12.7bn. Prices per unit, on the other hand, only dropped by 8 per cent year-on-year.
“This single-digit price correction is in sharp contrast to declines we witnessed in 2008-09 and is a clear indication that the market is maturing,” said Mr Plumb.
Despite this, JLL expects further declines in both the number and the prices of homes sold during the second half of the year.
Rents remained flat during the quarter, but are expected to come under pressure from an anticipated increase in supply.
Indeed, a wave of new off-plan properties were launched in Dubai during the second quarter of 2015, contributing to the decline in the number of homes sold in the secondary market, according to a new Cavendish Maxwell report.
The agency said that 7,900 units were released during the quarter across 19 projects.
The bulk of these are “affordable” properties – apartments (82 per cent) and town houses (17 per cent) in secondary locations such as Dubai Silicon Oasis and Dubai World Central.
A similar glut of properties came on to the market in 2008 ahead of the last market crash, but Cavendish Maxwell said that current conditions are not comparable.
The fact that most new projects contain affordable units with flexible payment plans, make them appealing to a wider spectrum of end-users and investors, it said.
“The financial scars of the last market crash run deep for the people that lived through it and are still here,” said managing partner Jay Grant. “That demographic is very cautious and whereas off-plan properties flew off the shelves in 2007-08, it’s less impulsive this time. That’s not to say that people won’t get caught out, but it’s a more considered market.”
Faisal Durrani, international research and business development manager at Cluttons, said that according to his firm’s analysis, some 40,120 new units have been announced so far in 2015 – about half of which are in Nshama’s Town Square. A further 4,000 were announced by Nakheel at the former Dubai Waterfront site in Jebel Ali in January.
Mr Durrani argued that the short-term impact of such announcements would be limited, as it will take about 10 years before Town Square is fully developed.
“Developers have learnt from the past and are carrying out these projects in phases. A lot of the announcements are from state-owned developers, who have no inclination to rush them to market,” he said.
He added that the historic average population growth for Dubai has been around 7 per cent, but even if a lower rate of 5 per cent growth occurred between now and 2020, it would mean a population increase of 400,000.
“If you look at the pipeline and the projected population growth, they are quite easily matched.”
mfahy@thenational.ae
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
