PROPERTY MARKET LOOKS TO HORIZON
Analysts expect pick-up by next year. Sarah Townsend reports
The tie-up announced in March between two of the UAE’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 country remains a 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 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 last year, 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” offplan housing has remained relatively strong, with a total of 6,000 residential units delivered in Dubai in the year-todate 2018, and a further 15,500 units are 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-onyear in February and 1 per cent month-on-month, while rental prices fell 10 per cent year-onyear, 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, a 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 Al Ghadeer master plan, a 3 million square metre community with 611 homes in the first phase. Aldar has priced units at Al
Ghadeer “aggressively” in response to market conditions, its chief executive Talal Al Dhiyebi said 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 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,” said Core Savills’ partner Edward Macura.