Green shoots of optimism offer renewed confidence to investors even as property sales and rental prices look set to remain subdued for the rest of 2018
UAE real estate recovery likely next year, analysts say
The tie-up announced in March between two of the country’s biggest real estate companies, Aldar Properties and Emaar Properties, may have buoyed the market in the short-term but a real estate price recovery in the UAE remains a long way off, analysts say.
This partnership perhaps marks the start of a trend towards greater collaboration in the industry, by real estate consultancies as well as developers. Last week, Cluttons' Middle East operations were acquired by Savills' UK division, as part of a strategy to increase efficiencies.
Still, despite forecasts at the end of 2017 that the market would bottom out this year, most experts have changed their tune as prices continued to slip in the first quarter of 2018. Recovery is now not expected until 2019, according to several reports published this year.
“Challenges of oversupply, mismatch between offer and supply, weakening demand across sectors such as office and retail, and relatively lower levels of household income growth are all exerting downward pressures on the market,” said property consultancy Core Savills’ first-quarter market update for Dubai, published this month.
The industry faced numerous headwinds in 2017, including low oil prices, pressure from budget-conscious residents for affordability and widespread corporate consolidation, which led to shrinking office and housing requirements and forced landlords to lower rents, creating a "tenant’s market".
Demand for "affordable" off-plan housing has remained relatively strong, with a total of 6,000 residential units delivered in Dubai in the year-to-date 2018, and a further 15,500 units expected over the rest of the year, Core Savills said.
However, in Dubai’s sales market, this “cascade” of new stock has shifted demand away from traditionally sought-after areas such as Downtown and Dubai Marina, and delayed sales price recovery. In those two areas, year-on-year sales prices fell by 7.5 per cent and 6.6 per cent, respectively, in the first quarter.
These are actually steeper declines than the 5.6 per cent and 1.5 per cent drops Core Savills recorded for the neighbourhoods in its third quarter 2017 update. In the Dubai residential rental market, prices declined by as much as 10 per cent, Core Savills said.
In Abu Dhabi, sales prices plunged 7.9 per cent year-on-year in February and 1 per cent month-on-month, while rental prices fell 10 per cent year on year, market analyst Reidin said in its March residential price index. At the top of the market, for example on Saadiyat Island, prices appear to have stabilised to a degree in the first quarter. “We have seen no [downward] movement for two quarters and are starting to see a return of purchasing activity as a result,” Faisal Durrani, head of research at Cluttons, told The National in April.
However, average residential prices on Saadiyat Island are down 26 per cent since the start of 2015 so it is too early to talk about price recovery, he added.
In terms of new project launches, developers continue to focus on the middle income affordable sector. “Housing allowances are being realigned in line with changing business activity and hence people’s appetite for higher ticket properties remains low,” said Manika Dhama, senior consultant at consultancy Cavendish Maxwell, which forecast in its Q1 market update that rental and sales prices would continue to decline throughout 2018.
The biggest affordable scheme unveiled this year was Aldar’s Dh10 billion Alghadeer masterplan, a 3 million square metre community with 611 homes in the first phase. Aldar has priced units at Alghadeer “aggressively” in response to market conditions, its chief executive Talal Al Dhiyebi told reporters in April.
Aldar this month reported a 5 per cent rise in first-quarter net profit despite flat revenues and falling sales compared to the same period of 2017. But its acquisition of Dh3.7bn of assets from Abu Dhabi’s Tourism Development & Investment Company – due to complete in the summer – is expected to substantially boost its bottom line later this year. One of the assets it will acquire is Saadiyat Grove, one of the first two projects under development through Aldar’s partnership with Dubai-listed Emaar, which aims to develop a potential Dh30bn worth of projects in the UAE over the coming years.
Dubai’s Nakheel also reported a 5 per cent rise in net income for the period, but chief executive Sanjay Manchanda told The National in March it had been a “challenging” quarter. “Everybody is waiting and watching,” he said. “Sales are happening, but we would like to have their pace quickened up or [generate] additional momentum.”
The outlook is far from rosy for another Dubai developer, Damac Properties, whose net profit plunged 45 per cent in the first three months of the year, which was attributed to rising cost of off-plan sales, whose value dropped 27 per cent year-on-year. “We believe 2018 will be a challenging year for pure home builders in the UAE as home ownership weakens across the primary market,” Dubai investment bank Arqaam Capital said shortly after Damac’s filing.
The rest of the year is unlikely to see significant change in terms of market pricing, but the good news is that investor sentiment at least is improving and demand remains strong even if developers and landlords have less power to charge what they’d like, experts say.
“The decline in prices hasn’t significantly dampened occupier sentiment due to the wide variety of options now available at very competitive prices,” noted Core Savills’ partner Edward Macura.
Meanwhile, the Dubai Land Department is taking steps to streamline real estate conveyancing procedures to help cut costs for investors. It plans to create a "smart" digitised platform called Real Estate Self Transaction (Rest), that will eliminate the need for paper documentation of sales and rental transactions by 2020, it announced this month.
Emaar and Aldar – can they lift a subdued market?
Dubai’s Emaar Properties and Abu Dhabi’s Aldar Properties in March announced a strategic alliance “to develop the world’s next era of iconic destinations” with a targeted Dh30 billion national and international development pipeline.
It is by far the biggest collaboration between developers from different emirates to date and is likely to bring them both cost savings on jointly developed projects at a challenging time for the UAE real estate industry.
Immediately after the announcement in March, shares in both Aldar and Emaar Properties jumped, with Aldar, listed on the Abu Dhabi Securities Exchange, rising by as much as 6.5 per cent, while Dubai Financial Market-listed Emaar rose by up to 3 per cent.
The alliance was predicted to boost investor confidence, analysts said at the time. “Such partnerships will continue to show the maturing nature of the UAE’s property market and the growth in investments from recognised developers bodes well for the future outlook as it provides a degree of confidence to investors,” Taimur Khan, Dubai-based senior analyst at real estate consultancy Knight Frank, told The National. And JLL Mena’s head of research Craig Plumb said the market would be eagerly awaiting details of the duo’s project pipeline.
The alliance will initially focus on two UAE-based projects, Saadiyat Grove in Abu Dhabi and Emaar Beachfront in Dubai. Saadiyat Grove, set to open in 2021, is a mixed-use development comprising around 2,000 residential units, two hotels, 400 serviced apartments and 130,000 square metres of “experiential lifestyle and retail space” aimed at millennials.
Emaar Beachfront, a private island situated between Dubai’s Jumeirah Beach Residence and Palm Jumeirah, will consist of around 7,000 residential units with access to a 1.5 km private beach. Aldar chief executive Talal Al Dhiyebi told reporters in April that the alliance would aim to expand internationally in the coming years.
With residential sales and rental prices forecast to continue their decline throughout 2018, news of the partnership has proven no panacea for the current market slowdown. However, this partnership (Aldar/Emaar), as well as the Savills/Cluttons news, gives developers confidence that industry collaboration is possible – perhaps crucial – for delivering schemes that meet market demand.