TASWEEK reveals positive indicators for UAE real estate in Q3 2014

483TASWEEK Real Estate Development and Marketing’s latest comprehensive market intelligence report shows a robust real estate sector during Q3 2014 in step with the UAE’s surging economy. Market drivers include rapid population growth, the government’s globalization policies, and improving income levels.

A number of new property development projects are being launched as the UAE’s population continues to increase at approximately 7.60 per cent per annum - one of the world’s highest population growth rates. The population is projected to hit 9.9 million by the end of 2014 and 18.83 million by 2023.

“There was a fluctuating yet sustained demand for real estate in Q3 as the size of the population expanded exponentially. This trend is only natural as the sector strives to meet the needs of the people. Other indicators include stronger banking liquidity, more services, and either sustained or increased prices for off-plan rentals and sales. Further bolstering the industry’s expansion is the UAE Government’s move to put significant measures in place to prevent any speculative activity in real estate and to control credit growth. In the coming years, TASWEEK expects the local industry to continue its uptrend not just due to the rising population and the sector’s steady recovery but also due to other fundamental factors such as surging investor confidence, Dubai’s vastly improved financial status, and joint public and private projects buoyed by Dubai’s hosting of World Expo 2020,” said Masood Al Awar, CEO, TASWEEK Real Estate Development and Marketing.

TASWEEK’s UAE Real Estate Market Report for Q3 2014 also shows that the overall inflation rate remained at less than 2 per cent year-on-year in March although it continues to go up mainly due to rising rents. The rental component of the Consumer Price Indices accounts for 39.3 per cent. Furthermore, banks in the UAE remain generally sound and profitable, with the net loan/deposit ratio remaining stable at around 92 per cent, down from near 110 per cent in 2008. The gross loans/deposit ratio, however, is driving closer to 100 per cent — suggesting more limited room for loan growth.

Abu Dhabi

Rents in Abu Dhabi have stabilized following the surge in Q1 and Q2. Prices are expected to come down, taking into consideration the huge gap between demand and supply as well as the purchasing power of residents. Some landlords, however, have shrugged off lower occupancy rates in order to protect the current rental levels, but a decreased number of transactions indicate the market’s patience and confidence in the future. In fact, the capital city’s real estate market experienced its sixth consecutive quarterly increase in Q2. One factor that affected the growth was Abu Dhabi Government’s move to remove the rental cap.

On average, sales prices in Q3 remained the same compared to Q2 — an indication of strong investor confidence in off-plan sales. “Aldar” sold all 223 of its Al Hadeel apartments and townhouses within a few hours, with property prices ranging from AED 1,350 to AED 1,450 per square foot for an apartment. Similarly, approximately 300 units out of 540 were sold off plan during the launch of “Ansam”. Sales prices of apartments reached AED 1,450 to 1,550 per square foot. Off-plan property sales will continue to gain momentum on the back of increased investor confidence, allowing projects to be self financed and less dependent on federal support.

Abu Dhabi’s property sector remains vibrant, with 20 new real estate projects now underway. To be built over a period of three to five years, most of the new projects are being launched within or as an extension of the existing master planned communities with developed infrastructure and convenient facility access. This keeps the overall development costs low.

Dubai

Similar to Abu Dhabi, rents in Dubai have stabilized after the drastic jump in prices during Q4 2013 to Q2 2014. However, TASWEEK does not expect the prices to dramatically come down despite the projected increase in supply. In fact, it projected a five per cent increase in rentals in posh places such as Palm Jumeirah, Jumeirah Beach Residence, the Downtown area, and Dubai Marina.

As for real estate transactions, there was a general slowdown mainly due to the Dubai Government’s measures to cool down the market, such as doubling RERA transfer fees and stabilizing rental prices. Transaction volumes have decreased by 15 per cent since Q1.

Dubai also witnessed an increased demand for residential units in Q2 as average sale prices rose 35.5 per cent on a year-on-year basis. The growing demand from home buyers and investors resulted in a slew of new project announcements, raising concerns of supply outstripping demand. TASWEEK also noticed high interest among buyers in Dubai’s off-plan property options.

Conclusion

The dramatic increase in the UAE’s population is one of the key elements driving the local real estate market. This has prompted the UAE Government to ramp up its infrastructure activities especially after Dubai’s successful bid to host World Expo 2020. This year, the government is about to award infrastructure projects worth USD 15.18 billion, almost five times more than the value of contracts given in 2013. Large amounts, for instance, were allocated for large-scale railway projects such as the Etihad Rail (USD 11 billion) and Abu Dhabi’s metro project (USD 8 billion). Dubai’s Road and Transport Authority also announced plans to spend USD 2 billion on the development and expansion of its metro and tram facilities.

In parallel with the UAE economy’s continuous expansion is the significant growth in the real estate sector. In Q3, rental rates and sales prices both in Abu Dhabi and Dubai stabilized significantly. TASWEEK also notes how confidence in off-plan property options is further boosting the local market. Government housing policy continues to positively impact the sector as well.

“Given the convergence of these significant factors, we expect the sector’s good performance to continue in the coming years. However, the country must also emphasize the building of affordable housing units with due consideration to its residents’ purchasing power. Likewise, it will also have to address concerns over supply exceeding the demand. TASWEEK will continue to closely monitor market developments – especially in light of the IMF’s statement in its latest World Economic Outlook that “An uneven global recovery continues” that is being affected by some economically and politically troubled zones – and provide services that can contribute to local and regional industry growth,” concluded Al Awar.

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