The GCC real estate market is displaying indications of an uptick following a period of declining prices and slower demand, although it is still vulnerable, according to a report by think-tank the Institute of International Finance.
“Across the region, there are some signals of market adjustment and governments are implementing targeted reforms that raise hopes for a real estate turnaround,” said the report by the IIF’s chief Mena economist Garbis Iradian and associate economist Jonah Rosenthal.
Lower oil prices since 2014 have crimped consumer purchasing power across the oil exporting economies of the GCC, driving a fight for affordability and creating a "buyer’s market" as developers introduce compelling incentives to shift inventory.
Rising interest rates, appreciating exchange rates and regional tensions have compounded the market slowdown, and real estate rental and sales prices have slipped since 2014, the IIF’s report noted.
However, in Saudi Arabia, the authorities have introduced several affordable housing programmes and real estate public-private partnerships aimed at increasing home ownership among Saudi nationals. They are also rolling out new mixed-use mega-projects as part of the kingdom’s Vision 2030 economic diversification plan and all of this is expected to bolster demand for real estate, the IIF said.
Meanwhile, in the UAE, the authorities plan to reduce government fees such as those required to register new properties and sales transactions and relax regulations on foreign ownership. Last month, Abu Dhabi amended its real estate laws to permit freehold ownership by foreign investors for the first time in certain free zones across the emirate.
Abu Dhabi’s Dh50 billion economic stimulus package being rolled out in 2019 and beyond is expected to provide a much-needed boost to the real estate sector, the IIF said.
The UAE has also opened online applications for a new 10-year residency visa aimed at international investors and expatriates working in certain industries. A pick-up in longer-term residency in the country is expected to fuel demand for real estate investment, as expats seek to put down roots.
What is more, after underperforming emerging market stock markets in recent years, there are signs of an upturn in Abu Dhabi and Dubai since the beginning of this year.
As well as reflecting the impact of lower oil prices, the slowdown in the UAE real estate market since 2014 “reflects a slowdown in foreign demand given the small share of citizens in the total population”, the report noted. Emirati nationals make up around 12 per cent of the UAE population.
Construction activity in the country remains brisk despite the headwinds, with the first quarter of 2019 seeing an increase in the volume of residential deliveries and the launch of many large commercial projects.
In Saudi Arabia, which has lower levels of foreign investment than the UAE, real estate market weakness is largely due to fiscal consolidation, as the kingdom enacts reforms to reduce its economic dependence on hydrocarbons revenue. One such reform was the withdrawal of housing subsidies for nationals, which hit demand.
Exchange rate movements have also discouraged prospective buyers. “The appreciation of the US dollar [to which most GCC currencies are pegged] against most global currencies makes regional property more expensive for customers who would otherwise be interested,” the IIF said.