Many analysts predicted the UAE’s real estate market would bottom out by the middle of 2017, but this has not proven to be the case.
Market updates for the third quarter – the most recent available – from consultancies such as JLL, CBRE, Core Savills and others, have shown a continued slide in sales and rental rates in the residential market in particular, while commercial markets were flat or witnessed small declines. The country’s hospitality market, meanwhile, also suffered another disappointing year.
The industry faced numerous headwinds in 2017, including low oil prices, a fight for affordability by budget-conscious residents and widespread corporate consolidation, which led to shrinking office requirements and forced landlords to offer lower rentals and increased incentives, creating a ‘tenant’s market’.
In the residential sector, average apartment rents in Abu Dhabi plummeted 13 per cent year-on-year in the quarter and 6.2 per cent in Dubai, although villa rents were more stable, with drops of 1 per cent and 2.1 per cent respectively, according to JLL.
Average office rents remained flat in Abu Dhabi year-on-year in the third quarter, and dropped by 1.6 per cent in Dubai. Average daily rates (ADRs) in Abu Dhabi fell 8 per cent year-on-year in the quarter and in Dubai by 4 per cent, as hoteliers slashed prices to lure visitors.
“2017 was a year of uncertainty and lacked market direction,” said David Godchaux, chief executive of Core Savills (interview, below). Residential and office rents are expected to slip further in 2018 as prolonged economic headwinds take their toll. “Given the range of complex factors hindering the market’s ability to turn around, rents in Abu Dhabi are expected to end the year 10-12 per cent lower than at the end of 2016,” said Faisal Durrani, head of research at Cluttons. It had initially forecast an 8-10 per cent fall in rents for 2017.
Nevertheless, 2017 was also a busy year, with notable project launches and sales milestones achieved, pointing to stronger industry sentiment in 2018. Several mixed-use schemes were launched, heralding a tentative return of the Dubai ‘mega-project’ that crumbled during the recession. These included ‘District 2020’, the legacy masterplan for Dubai Expo 2020, Dubai Properties’ Marsa Al Arab project, Union Properties’ Motor City masterplan, and Arada Development’s Aljada, which set a new Sharjah record for number of homes sold in one day.
In both Dubai and Abu Dhabi, developers reported strong sales at the annual Cityscape conference, including Aldar, which sold out the second phase of its Water’s Edge scheme, and Azizi Developments, which sold out the first phase of its Riviera project in Meydan.
The total value of transactions of existing residential properties (excluding land) in Dubai in 2017 was up 28 per cent year-on-year, JLL noted, and off-plan sales accounted for the bulk.
“The most notable event with regards residential sales in 2017 was the amount of off-plan sales,” said Lynnette Abad, partner and head of the Property Monitor database at Cavendish Maxwell. She said 67.7 per cent of the year’s sales were off-plan as of December 12.
There was also a dominant proportion of ‘affordable’ properties. ‘Mid-market’ was the only price category of the Dubai residential market for which online searches on marketplace Dubizzle.com rose this year, indicating strong demand for cheaper housing. “The most significant changes in the structure of the market during 2017 have been the growth of off-plan sales and a continued focus on the affordable or mid-income sector amid flat market conditions and increasing supply,” said Craig Plumb, head of research at JLL Mena.
This is likely to remain a key feature of the 2018 UAE real estate market, while appealing off-plan projects with attractive sales prices and payment plans have “transformed the residential market” over 2017, reviving market sentiment and opening new options for first-time home buyers, Ms Abad said.
However, the danger of a potential over-supply on the back of sales achieved through attractive payment terms is increasing. “Although attractive to investors, it could result in a future ‘real estate bubble’,” JLL’s market update warned.
On the investment side, 2017 was a year of consolidation for many – take the public listings of real estate entities Emaar Developments and Emirates NBD REIT. “This was also a year of joint venture activity across large masterplans leveraging off the increasing strength and reputation of some of the region’s largest developers,” said Simon Townsend, head of valuation, advisory and consulting at CBRE Middle East.
Figures from CBRE put future residential supply at upwards of 92,000 units between the end of 2017 and 2020, around 87 per cent of which will be apartments and 40 per cent of which is expected to be delivered in 2018. The market is set to remain soft into 2018.