The once buoyant property markets in Ajman and Ras al Khaimah have suffered a major decline in the past year as sale prices for some properties have been cut almost in half, says the property services company CB Richard Ellis (CBRE). Residential prices in Ras al Khaimah are now as low as Dh6,700 (US$1,824) a square metre, down from more than Dh11,000 at the peak of the market in 2008, CBRE said. Ajman's average price is Dh4,300 a sq metre, down from Dh5,900 in 2008.
"2009 has been a challenging year for the Northern Emirates as reality returns with a bump amid severely pressing economic conditions," said Matthew Green in CBRE's latest property report on the area. New supply has entered the market while demand has shrunk as a result of the credit crunch in late 2008. In Ajman, where more than 1,000 towers were planned, most of the projects have been cancelled or have not started construction as investors stopped paying.
Lease rates across the Northern Emirates have fallen by an average of 29 per cent since the first half of 2008. The area had enjoyed relatively high lease and occupancy rates between 2006 and 2008 against a backdrop of rising prices in Dubai. Ajman, Sharjah and Umm al Qaiwain all benefited from Dubai's increasing prices in the past few years as residents and speculators were looking for more affordable accommodation. But as prices in Dubai went down, residents started migrating back.
"Residents choose locations on the border areas of Dubai, where better quality stock and increasingly competitive lease rates are being offered," said Mr Green, adding that competition led to more flexibility from landlords. "Landlords are now typically offering rent-free periods of up to one or two months - and in some cases free parking." Many buildings that have been completed in the Northern Emirates have not been connected to utilities. Once this problem is solved, this stock will be added to an already oversupplied market.
Prices in some emirates remain higher than others, such as the more tourism-oriented Ras al Khaimah, which delivered higher quality offerings, CBRE said. "Residential prices in Ras al Khaimah are faring better than those in Ajman as building features, facilities and amenities are typically superior," said CBRE's analysts. The situation affects most major developers in the area. Yesterday the Abu Dhabi-listed RAK Properties, Ras al Khaimah's largest developer, posted a net loss of Dh11.5 million in the fourth quarter of last year.
The company's full-year profit dropped 55 per cent to Dh170m compared with Dh379.4m for 2008, the company said in a statement to the Abu Dhabi Securities Exchange. "2010 is the year of deliverance, when they will start recognising revenue from handover of completed properties," said Chet Riley, an analyst at Nomura. "That will give a much clearer picture of where the company stands." The company is planning to deliver three developments this year, including the first 93 villas of Mina Al Arab RAK in the first quarter, as well as RAK Tower on Reem Island in Abu Dhabi and the two Julphar towers in the second quarter.
"This is going to be the key catalyst for the first and second quarter," said Mr Riley. "We are expecting around Dh1 billion worth of revenue coming through from property handovers in 2010." The analyst said the company was cash positive, but will face two challenges this year: minimising the default rate; and obtaining bridging finance until the company is given the receipts paid on handover. RAK Properties will also seek to exit some of its investments, including some in Bahrain and Dubai, said Mohammed al Qadi, the chief executive of the company.
While shareholders last year forced the company to declare dividends, Mr al Qadi said this year it would resist the pressure. @Email:firstname.lastname@example.org