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Regional real estate market conditions have continued to soften during 2017, despite an improvement in oil pricing during the last four months of the year. This reflects the lower levels of economic growth, and the resulting impact on real estate demand fundamentals, a situation further compounded by the threat of oversupply in certain parts of the property sector.
Whilst location and market level performances have varied, hospitality and commercial offices have typically been the weakest performers, as subdued demand from the key government and hydrocarbon sectors have negatively impacted performance. However, there has also been visible pressures within the residential and retail markets, as a trickledown effect has occurred in the wider economy, with investor and consumer confidence dipping amidst the challenging business conditions, and redundancies within key sectors, such as banking and finance, oil and gas, and the public sector.
Whist undoubtedly still affected, Dubai’s real estate sector has proven to be more resilient than most other regional markets, aided by the presence of a more diversified economy, high quality infrastructure and continued government spending. However, individual asset classes have experienced differing levels of performance, resulting in a varied picture. The top performers have been the prime commercial office sector, prime retail, and the off-plan residential market, which have all seen demand levels maintained.
The residential market has been particularly fragmented, with high volumes of off-plan sales masking signs of stress within the wider sector, which is broadly characterised by rising supply levels and deflationary rental pressures. Based on Dubai Land Department data, the total value of residential transactions increased by 16 percent in the period to Q3 2017, versus the same period last year. This was driven by growth in overall transaction numbers, which rose by close to 30 percent, but was ultimately due to a significant spike in off-plan activity, with off-plan sales rising by around 53 percent, compared to the same period last year. This underlines the significant weight of capital that continues to target Dubai’s real estate market, with investors looking for a safe haven investment location with political stability, product availability, differing price points, and low levels of currency volatility.
However, despite the obvious positive recent transaction numbers, Dubai’s residential sales market does appear to be somewhat disconnected from fundamentals and the performance of the leasing sector, with yields currently moving out as rental declines outpace that of sales values. This trend is being driven by the widespread availability of flexible, back weighted payment plans, as well as lower ticket prices, which combined are incentivising investors to make more significant speculative purchases, despite rising supply levels and softening conditions.
Looking ahead to 2018, we expect to see sustained growth in the off-plan sector as investors continue to speculate on the future performance of the real estate market. This situation is likely to be buoyed by modest growth in the emirate’s economic growth, which will translate into improved investor and business sentiment. However, we also expect market risks to heighten as supply levels expand further.
Matt Green is head of research and consulting at CBRE Middle East
Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.
Our Standards: The Thomson Reuters Trust Principles
© ZAWYA 2017
Whilst location and market level performances have varied, hospitality and commercial offices have typically been the weakest performers, as subdued demand from the key government and hydrocarbon sectors have negatively impacted performance. However, there has also been visible pressures within the residential and retail markets, as a trickledown effect has occurred in the wider economy, with investor and consumer confidence dipping amidst the challenging business conditions, and redundancies within key sectors, such as banking and finance, oil and gas, and the public sector.
Whist undoubtedly still affected, Dubai’s real estate sector has proven to be more resilient than most other regional markets, aided by the presence of a more diversified economy, high quality infrastructure and continued government spending. However, individual asset classes have experienced differing levels of performance, resulting in a varied picture. The top performers have been the prime commercial office sector, prime retail, and the off-plan residential market, which have all seen demand levels maintained.
The residential market has been particularly fragmented, with high volumes of off-plan sales masking signs of stress within the wider sector, which is broadly characterised by rising supply levels and deflationary rental pressures. Based on Dubai Land Department data, the total value of residential transactions increased by 16 percent in the period to Q3 2017, versus the same period last year. This was driven by growth in overall transaction numbers, which rose by close to 30 percent, but was ultimately due to a significant spike in off-plan activity, with off-plan sales rising by around 53 percent, compared to the same period last year. This underlines the significant weight of capital that continues to target Dubai’s real estate market, with investors looking for a safe haven investment location with political stability, product availability, differing price points, and low levels of currency volatility.
However, despite the obvious positive recent transaction numbers, Dubai’s residential sales market does appear to be somewhat disconnected from fundamentals and the performance of the leasing sector, with yields currently moving out as rental declines outpace that of sales values. This trend is being driven by the widespread availability of flexible, back weighted payment plans, as well as lower ticket prices, which combined are incentivising investors to make more significant speculative purchases, despite rising supply levels and softening conditions.
Looking ahead to 2018, we expect to see sustained growth in the off-plan sector as investors continue to speculate on the future performance of the real estate market. This situation is likely to be buoyed by modest growth in the emirate’s economic growth, which will translate into improved investor and business sentiment. However, we also expect market risks to heighten as supply levels expand further.
Matt Green is head of research and consulting at CBRE Middle East
Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.
Our Standards: The Thomson Reuters Trust Principles
© ZAWYA 2017
