What comes next for the UAE’s property market?

Covid-19 was a growth accelerator for real estate around the world, with many mature markets experiencing high demand and low supply. The UAE witnessed a similar trend. As we saw during the course of 2020, the UAE’s real estate market did quite well – especially in the residential sector. This year also started off strong, with sales transactions continuing to increase month-on-month as demand continues to rise.

There were many factors as to why the real estate market thrived despite the pandemic. Proactive government incentives such as special investor and retirement visas, golden long-term visas, as well as the reduction of the loan-to-value (LTV) for first time homebuyers to 20 per cent by the UAE Central Bank gave a significant boost to the industry. Low interest rates, competitive mortgage products and attractive housing prices also supported the market.

According to Firas Al Msaddi, CEO of fam Properties, “We have seen a much better overall market sentiment due to the built-up demand during the lockdown. This, combined with the positive trends for villas, townhouses and waterfront properties, has massively contributed to lifting the spirits of investors and boosting their confidence. All of these factors have increased the number of sales transactions across all segments of real estate in Dubai.”

The other factors that came into play was that for many people, during the pandemic, their homes became their places of work, a school for the kids and the sole place for entertainment and dining. Therefore, we saw a huge surge in many residents wanting to upgrade their living experiences by either opting for larger homes or moving from apartments into villas/townhouses with gardens and outdoor spaces.

Al Msaddi adds, “[Demand for] waterfront and, in particular sea- and beach-front apartments, is another trend driven by the subconscious fear of another lockdown. People now appreciate the living experience more than ever before.”
The rental and sales markets seemed to have moved in parallel for the villa/townhouse sector, especially in prime, popular areas.

According to Simon Baker, managing director at haus & haus, “One big trend we have seen is that the rental rates of villas and townhouses in Dubai have rebounded strongly in the last six months as demand now outweighs supply. In fact, prices have increased by as much as 30 per cent in some communities. This increase follows the trend of sales prices, where on average the increase in apartment rentals rates is trailing that of villas.”

Abu Dhabi also followed the same trends, reveals Kika Pavese, managing director of MD Real Estate. “The challenge in Abu Dhabi is that the supply of villas is currently low, putting the seller at a distinct advantage when it comes to setting selling prices in areas like Saadiyat Island and Yas Island. In contrast to this, we see other areas like Al Reem Island, where an oversupply of units has created a buyer’s market where the roles have reversed, and buyers are at a distinct advantage when it comes to price negotiation.”

Ben Crompton, managing partner of Crompton Partners Estate Agents adds, “The current trend in Abu Dhabi real estate across both leasing and sales is the resurgence in prices for villas, and the continued struggles of the mid and lower apartment market. The pandemic and lower interest rates seem to have spurred the market for outdoor spaces, gardens and communities, boosting prices and occupancy rates. Job losses and good supply levels have kept apartment rates suppressed.”

Another factor that has supported the villa/townhouse market is that due to pandemic-related restrictions, many people have been able to save more money, putting them in a good position to buy a property when lockdowns eased – which is exactly what we saw in sales transaction data.

“Clients have also realised that it would be more profitable for them to be homeowners instead of tenants due to the flexibility in payments offered by banks in comparison to the lower flexibility provided by landlords,” explains Pavese.

Another trend that has carried over into 2021 is the demand for short-term rentals in Dubai with visitors gearing up for Expo 2020.

According to Baker, “Towards the end of 2020, we saw a surge in demand for short-term and monthly rentals from both tourists and residents looking for a more flexible furnished option without the requirement of a year-long contract. Our occupancy rates over the last six months have been close to 100 per cent, and we are searching for more properties as we near Dubai Expo 2020, set to begin in October this year.

“There’s also a trend for people wanting properties with more space as guests look to ensure social distancing with any adhoc visitors – plus after a year of reduced travel, having plenty of space and luxury in a holiday/short-term rental is extra appealing.”

However, in Abu Dhabi, the short-term rental market has yet to gain traction. “Short-term rentals is still a very new concept in Abu Dhabi but it is growing. We should see early movers reap the benefits before the market settles down into an orderly pattern. Locations next to tourist hubs like Yas Island should see most of the benefit,” explains Crompton.

Dubai Residential Market
In Dubai, January 2021 kicked off with the highest number of secondary/ready market sales transactions in a single month over the past few years. The next five months also continued to break records, and the trend doesn’t seem to be slowing down. In fact, June recorded 6,341 real estate sales transactions worth Dhs14.76bn – the highest since January 2014 – marking a 320 per cent increase compared to June 2020 and a 92 per cent rise compared to June 2019.

Overall, the first half of 2021 had 27,245 real estate sales transactions worth Dhs61.67bn – the highest since H1 2014. Specifically, Q2 also recorded 15,599 real estate sales transactions worth Dhs36.83bn – also the highest in seven years.

Going into the second half of the year and 2022, we expect to see the prominent trends continue. The increase in demand for villas/townhouses will continue to drive prices higher in this sector while low interest rates and competitive mortgage products will also have a positive effect for buyers in the market, especially end-users looking to live in the property.

Al Msaddi says, “I don’t think that 2022 will witness a price increase for villas, townhouses and luxury properties at the same ratio and speed as last year, but it will most likely continue to increase in a very healthy way that is grounded in real end-users demand and not speculators. On the other hand, I would expect a higher price increase ratio for well-located and well-maintained projects in areas like City Walk, Dubai Marina, Downtown Dubai and Business Bay that still did not achieve their fair price point due to the strong supply and the high annual service charges. The unevenness between the supply and demand for in-land apartments is a blessing for those who wish to invest in the real estate market today, because it won’t last forever.”

Dubai Commercial Market
Commercial real estate was probably the most impacted by the pandemic. Offices were left empty as employees were working from home and many businesses decided to scale down their offices, some entirely. However, on the flip side, we also saw some businesses look for larger offices to accommodate social distancing measures and implement a better working environment.

Andrew Love, partner and head of Capital Markets and Occupier Services and Commercial Agency for Knight Frank comments, “Understandably the sectors most reliant on people traffic were the worst impacted by the pandemic – retail and offices in particular saw occupational rates fall and defaults rates rise, particularly in older Grade B office buildings, but that is changing rapidly as global lockdowns ease and we start returning to a sense of normality. Ultimately there is no replacement or alternative to being in an office environment with co-workers.

“The exchange of knowledge capital cannot be replicated virtually. Ultimately there will be some sectors where a (work from home) WFH culture becomes the norm, but it’s more likely that we will see hybrid working patterns adopted. Either way, the function of an office has likely been altered permanently – there will be places that businesses use to showcase themselves to clients and future talent; places for true innovation and collaboration; and places that put employee well-being at the heart of operations, with safety, security and ESG all top of priority lists.”

The pandemic has also catapulted co-working spaces to the limelight as they offer several advantages in the current scenario.

“Business centres and co-working spaces have been around for a while, however many businesses [have now] realised that they do not need to keep the cost of having a 500-1,000 sqft office when they can use business centres at a fraction of the cost while keeping the flexibility that the current business environment requires,” states Ben Bargh, director of CRC.

The retail market was repurposed/redefined during the pandemic, prompting collaboration between online and brick-and-mortar and making it more customer driven. Hospitality was also affected as tourism and corporate travel was significantly reduced. With that said, the warehouse and cloud kitchen sectors did well as more consumers and businesses were going online.

“One particular and growing asset class we are seeing in the region are data centres. As lockdowns continue to persist across the world, the amount of data we are consuming is increasing, particularly through streaming services such as Netflix, Apple TV and Amazon Prime. As the digital evolution continues with online shopping, this trend is only going to continue. As a result, this data needs to be stored somewhere,” explains Love.

“Data centres bring their own challenges; they consume a vast amount of power and they generally need to be in the city or as close to the city as possible. They need to be designed in a certain way so that there is an adequate floor to ceiling height; security; provision for cooling; and back-up power supply. We are now seeing developers rethink how they design some office buildings, on the basis that a floor or more could be a data centre. As an asset class, the end-users tend to have very strong covenant strengths and are willing to take much longer leases i.e., 20-30 years. This is why they are now becoming so attractive to institutional investors who seek security of income.”

Bargh concludes, “As we are heading toward the opening of Expo 2020 in less than 100 days, we are very optimistic that from the end of 2021 through 2022, there will be better recovery and growth for the commercial real estate sector and this is backed up by the statistics published from Dubai Economic Department and DMCC, a leading free zone in Dubai, showing a huge jump in the number of new trade licences issued in 2021.”

Lynnette Sacchetto is the director of research and data at Property Finder

Taken from Property Finder’s Prestige special report in Gulf Business’ August issue