The government of the United Arab Emirates (UAE) needs to introduce more measures to boost demand in the real estate market, especially the residential sector, which witnessed a sharp drop in rental and sales prices last year that is expected to continue in 2019, the head of research at an international real estate firm has said.

“While the measures announced to date will provide a welcomed boost to demand, more needs to be done,” Craig Plumb, MENA head of research for the United States-based real estate consultancy firm JLL told Zawya last week in response to questions sent by email.

“The current measures should be seen as a good starting point but they will not, by themselves, prevent the residential market from declining further in 2019,” added Dubai-based Plumb.

Last year, the UAE government introduced a number of initiatives, including new visa regulations aimed at attracting more investors and retirees to stay in the country.

The new rules included allowing foreign investors full ownership of onshore companies and 10-year visas for investors, entrepreneurs, and professionals in several fields such as science and research.

The government had also announced 48-hour transit visas for tourists and a five-year retiree visa for people who own property worth 2 million dirhams ($544,588) or have 1 million dirhams in savings, or a monthly income of 20,000 dirhams.

“It is very difficult to quantify the full effect of these measures until more is known about how they will be implemented and how many people will qualify. As with any new initiative ‘the devil will be in the detail’ and it remains far from clear how many new visas will be granted under these new categories,” Plumb said.

“While the government is right to be seeking to boost demand, they also need to be taking measures to restrict future supply before (residential sale) prices and rentals will recover. We do not believe that this will happen in 2019, with a further decline in rents and (residential sale) prices expected over the next 12 months,” he added.

A report released by JLL last week on the performance of the real estate market in the UAE in 2018, which also included forecasts for this year, showed the following:

For Residential:

In Dubai, both sales and rental prices have declined over the past year, with year-on-year apartment rents and sale prices falling by around 11 percent and 8 percent respectively. Villa rents and sale prices also declined by 7 percent and 9 percent respectively in 2018, the report said. As for Abu Dhabi, apartment rents declined by 11 percent year-on-year, while sale prices for prime villas and apartments fell by around 13 percent and 12 percent respectively.

For Retail:

In Dubai, rents in primary and secondary malls declined by 13 percent and 22 percent year-on-year respectively, while average retail rents in Abu Dhabi dropped by 12 percent year-on-year. Vacancy rates increased to 17 percent in the fourth quarter of 2018, from 2 percent only in the fourth quarter of the previous year. Plumb said the breakdown for the vacancy rates in Dubai’s primary and secondary markets were not available.

For Offices:

In Dubai, average Grade A rents, which the report defined as properties of the highest quality located in the best areas in the market, have declined by around 17 percent year-to-year to 1,553 dirhams per square metre, while vacancy rates increased to 11 percent in Dubai’s Central Business District, up from 8 percent in the last quarter of 2017.

For Abu Dhabi, office rents have continued to decline throughout 2018. The last quarter of the year saw rental declines both for Grade A space, which was down by 4.5 percent year-on-year, and Grade B office space, which also declined by 14 percent year-on-year. Grade B offices are those of lower quality standards than Grade A.

The overall vacancy rates stood at 24 percent in the fourth quarter of 2018, up 2 percent from the fourth quarter of 2017 for all grades.

For Hotels:

In Dubai, occupancy rates decreased by 2 percent year-on-year until the end of November 2018 to 75 percent, up from 77 percent in November 2017. Average daily room rates decreased by 7 percent for the same period, going down to $169, from $181 in November 2017. In Abu Dhabi, occupancy rates stabilised at a rate of 71 percent in the year to end of November 2018, while the average daily rate declined by 5 percent for the same period of time to $112, down from $118 for the corresponding month a year earlier.

In terms of future supply, JLL said 62,000 new residential completions were due this year in Dubai, the UAE's real estate hub, a 12 percent increase on the 520,000 homes complete at the end of 2018.

However, Plumb said that “the figures included in the report reflect the completions provided to us by developers”.

“We do not believe that all these projects will be delivered on the promised schedule. The past materialisation rates vary across sectors but developers have delivered less than 50% of the residential product on the promised schedule over the past 5 years,” Plumb said.

“We see no reason why 2019 will be any different and JLL would therefore expect around half of the 62,000 (Dubai residential) units currently scheduled to actually be delivered this year… if this is achieved, 31,000 would represent the highest ever level of residential completions in a single year in the Dubai market,” he added.

Asked about how and when the market will recover, Plumb said: “Some sectors of the market should experience an improvement in performance in 2020 and 2021, given the increased economic activity and visitor arrivals around the World Expo (which Dubai will host in 2020). The real question is whether this improvement will continue beyond Expo into 2022 and beyond. The main factors that will influence this will be (the) extent to which demand will be boosted by the initiatives already announced and the other initiatives that will be announced over the next year, and the extent to which the government is prepared to take measures to reduce future supply levels.”

Further reading:

(Reporting by Yasmine Saleh; Editing by Michael Fahy)
(yasmine.saleh@refinitiv.com)

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