The real estate market in the UAE in 2018 has seen a serious decline on both the sales and rental fronts. In most areas, we have observed declines in rents between 14 and 18 percent, with some areas reaching a 20 percent year-on-year drop compared to 2017. In contrast, commercial property rents have stabilised compared to last year, due to a comparatively limited supply.

The two main reasons for the decline in rents in the UAE residential rental market are oversupply and increased departures of expats due to the cost of living.

With the rising cost of living, more people are either scaling back their lifestyle or leaving the UAE. This, coupled with the increase in supply has led to a renters’ market, where landlords need to reduce rents in order to prevent their properties lying vacant. The implementation of the Value Added Tax (VAT) has further curtailed the spending power of UAE residents and, though VAT is not applicable in the UAE for renting residential properties, its indirect effect has driven up costs and made people be more careful with money.

Though we may see further drops in sales prices in the future, especially with the popularity of off-plan offerings in recent years, rental prices appear to be reaching equilibrium. It is possible that rents will stabilise soon and perhaps even show a small increase from Q3 2019 onwards due to Expo 2020, but it’s hard to say with any certainty. The biggest question right now is the Expo 2020 itself and what the state of the market will be after the Expo is over?

The best approach to take would be cautious optimism.

As we can see, following an overall decline of up to 18 percent in the rental market, calling the current trend a ‘correction’ or ‘healthy’ is very tricky. The additional downward pressure from the introduction of VAT has not helped the situation either. What we have observed is that the rate of decline has gotten better; indicating that we are coming to the bottom of the current property cycle, though when we will see upwards movement is uncertain. However, investor sentiment in the market is more optimistic, buoyed by new projects and recent government announcements such as the liberalisation of investment laws and changes to the visa rules in the UAE. These changes have been sorely needed in the market and their speedy implementation will revitalise the UAE’s economy.

Yet these announcements, though extremely welcome, need to be the beginning of comprehensive changes in the way the UAE does business. There are still major hurdles in the market such as limited access to credit, which is a major stumbling block for new buyers in the UAE. Implementing steps such as liberalising finance rules slightly and improving the loan-to-value ratio for expat mortgages can do a lot to open up the market to first-time buyers and help boost the real estate market in the UAE.

Any opinions expressed here are the author’s own.

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