While the pace of new project launches eased last year as developers adopted a more cautious approach in response to market conditions, the outlook for 2019 is “encouraging”, a new report from property services firm Asteco found.
According to Asteco’s UAE Real Estate Report Q4 2018, transactional volumes and values declined across all sectors and emirates, although a number of government initiatives, including residency visa changes and 100 per cent ownership of companies outside free zones, will have a positive effect on the market this year.
"While the downward trajectory in the real estate market for the short-term is unavoidable due to tepid economic/market conditions and the expected supply glut, the outlook for the medium and long-term for the UAE is encouraging, fuelled by a pro-active government response and clear focus on economic progress and sustainability,” said John Stevens, managing director of Asteco.
Consultancy Valustrat also pointed to a renewed sense of optimism in its 2019 outlook last month, although it noted that the "tenant’s market" that characterised 2018 will continue next year.
“Prime residential areas, which saw relative resilience in 2018, may continue to see some improvement,” Valustrat said.
Despite lower trading volumes last year, Asteco said there is still liquidity in the market, which is reflected in the rise in secondary market sales and the positive response to a number of off-plan developments unveiled last year.
Supply volumes of completed properties remained “substantial” Asteco said, with 6,200 residential units delivered in Abu Dhabi in 2018 and nearly 15,000 apartments and villas handed over in Dubai.
“Whilst there has evidently been a decline in new project launches/announcements - as developers take a wait-and see-approach in light of saturation concerns - committed projects are proceeding at pace,” said Mr Stevens.
Construction progress and overly ambitious handover programmes also contributed to the delay in project deliveries last year, the report found.
Apartment rental rates in the capital declined by 10 per cent over the course of 2018, while sales prices dropped by 8 per cent on average, said Asteco. The decrease for villas was less pronounced with rental and sales reductions of 8 per cent and 4 per cent, respectively. Abu Dhabi office rents saw a moderate 4 per cent decline since the fourth quarter of 2017.
In Dubai, office rental rates recorded the most significant slide at 13 per cent, followed by apartments at 10 per cent and villas at 8 per cent.
“As a result, landlords have generally been more open to negotiate discounts, and/or offer incentives such as lease-free periods and flexible payment terms [multiple cheques] to retain tenants and entice new ones,” said Mr Stevens.
Looking ahead to this year, the report found that the freezing of school fees for 2018 to 2019 in Dubai along with the wide-ranging government reforms - such as the 10-year residency visa and retiree visa options – along with increased federal and local budgets and stimulus packages “are expected to increase investment and facilitate economic growth and play positively on market sentiment”.
“With the advanced and ever-improving regulatory, financial and physical infrastructure, the UAE will continue as a leading land-sea-air multimodal transport hub connecting the Far East with the West, and thus attract human and physical capital with a long-term view on living, investing and doing business in the country,” added Mr Stevens.
However, the report said further pressure on sales and rental rates is expected well into 2019 due to the sheer volume of supply, although the rate of decline is likely to soften. For buyers and tenants, this will translate into more attractive/competitive offers from landlords and developers, Asteco said.