UAE residential property prices could bottom out in 2022, after sales prices fell by 7.1 percent in Dubai and two percent in Abu Dhabi in 2020, according to Knight Frank.

The real estate agency and consultant’s UAE Market Review and Forecast 2021 said new property supply levels are expected to ease in 2023 in Dubai and 2022 in Abu Dhabi, and that the market had been ‘remarkably resilient’ in 2020.

While in Abu Dhabi, the number of residential launches are expected to increase in 2021 but would not have a dramatic impact on the market as launches in recent years have been restrained, in Dubai, the number of residential launches are expected to remain materially below the average seen over recent years, the review said.

“Assuming these trends remain constant, mortgage rates remain at or around historic lows and loan-to-value ratios are kept at current levels, we are likely to see prices begin to bottom out during 2022. In prime markets with limited levels of new supply, we are likely to see prices being to recover six-months prior to this,” it continued.

Investors have recognised that the challenges of the COVID-19 pandemic are ‘short to medium term risks in nature rather than long term risks in market fundamentals’, the report said. 

“More so, regulatory changes from both the federal government and local governments have significantly bolstered these fundamentals over the last year,” said Taimur Khan, Associate Partner at Knight Frank Middle East.

“The easing of a number of geopolitical issues over the course of 2020 will also further strengthen market fundamentals.

“As a result, despite some of the intrinsic challenges which real estate market faces, we remain optimistic in our outlook and believe there are pockets of opportunities across a range of market sectors.”

Knight Frank said new launches of properties were at their lowest in Abu Dhabi and Dubai in 2020 since 2004 and 2012 respectively.

Company data shows that sales prices fell by 7.1 percent on average in Dubai in 2020, by eight percent for apartments, while villa prices remained ‘relatively stable’. Average prices for new-build apartments fell by four percent.

Prime residential market 

Prices in prime residential areas showed increases in the second half of 2020. For example, Palm Jumeirah saw increases from July to December, by 5.1 percent for apartments and 9.4 percent for villas.

Office market 

In the office sector, the review continued to show a ‘flight to quality’ in Abu Dhabi, with occupiers choosing to upgrade their workspaces amid softer rental prices. 

“The vast majority of demand in Dubai’s corporate occupier market continues to stem from existing market participants looking to consolidate operations or improve the quality of their space,” said the report.

“In response to this, landlords, in an attempt to retain tenants, are offering competitive rent-free periods.”

Hospitality 

In the hospitality sector, visitation for the first 11 months of 2020 was down 64.2 percent year-on-year to 5.37 million in Dubai, and while demand is expected to be bolstered by Expo 2020, it is unlikely to meet pre-pandemic expectations, the report said.  

“Looking ahead, despite the drive to inoculate the global population we are still not expecting tourism being able to return in a meaningful manner until the latter part of 2022,” it said. 

“The rescheduled Expo 2020 will help bolster demand, although visitation is unlikely to match the pre-pandemic expectations of 25 million visitors.

“Despite challenging market conditions, asset owners understand that this is a short-term shock, rather [than] a long-term structural change to the market. As a result, given the sector’s favourable long term outlook and investors’ extended investment horizons, where investment decisions are more closely correlated with the longer-term outlook, investment in the sector will remain steadfast.” 

(Reporting by Imogen Lillywhite; editing by Seban Scaria)

(imogen.lillywhite@refinitiv.com)

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. 

© ZAWYA 2021