Is 2021 a new beginning for the UAE property market after a challenging year? Generally speaking, UAE real estate has been in a downtrend for several years, a problem exacerbated by the global pandemic. As supply has grown throughout the region, demand hasn’t kept pace.
This means, for several years, prices have been negatively impacted, down almost 40% from their peak – a fall that is influencing UAE property trends in 2021.
Each month we’re examining the local UAE property market and what that could mean for investors, especially those that are looking for opportunities to invest outside of the region in UK property.
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Apartment Prices To Continue Falling?
It’s expected that apartment prices will continue to decline and bottom out in 2022, after sales prices fell by 7.1% in Dubai and 2% in Abu Dhabi overall last year.
Despite Dubai seeing some of the harshest lockdown measures in the UAE throughout the initial stages of the pandemic, demand remained relatively resilient.
Initial data from Knight Frank shows that nearly 33,000 residential units transacted in 2020, down 16.4% compared to 2019 – underpinned by a larger drop in off-plan sales, which fell by 32.1%.
While mainstream prices fell by 7.1% over last year, the price falls were largely concentrated in the apartments segment of the market, which saw prices fall by 8%. The average prices for new-build apartments fell by 4%.
It’s expected that, despite a broad range of measures being in place to entice demand – the UAE’s residential market will continue to face challenges going forward.
These challenges have always been underpinned by excess levels of supply compared to demand and this is set to continue. Knight Frank expects that sales prices will continue to decrease at a similar rate to 2020, with market performance varying across prime and non-prime neighbourhoods.
As expected, a changing trend for 2021 is how office space will be utilised going forward. The pandemic has completely changed working culture around the world and it’s more than likely that most office spaces will need to be more ‘mixed-use’ in their approach.
While it’ll be important for the office to be a work setting, there’s a growing importance for it to be a place for socialisation and collaboration, a change accelerated by COVID-19.
In terms of supply, a further 350,000 sq.m of space is expected to be added over the next two years. With a large proportion of the new supply expected to be classed as Grade-A, especially the circa 75,000 sqm arriving in 2021, it’s expected pressure will be exerted on rents.
Overall, the demand for quality office space is likely to change benchmarks going forward, ensuring a level of amenities not seen in the current market. This will likely have an impact on pricing throughout 2021.
While JLL expects a short-term drop in demand, this flexibility will be vital for supporting growth going forward.
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Is the UAE a Buyer’s Market or are Investors Looking Elsewhere?
With prices still declining and expected to bottom out in 2022, local experts suggest now is a great time to buy in the UAE, despite recovery still being some way off. Accelerated by the pandemic, regulation changes at both a local and federal level – while bolstering real estate demand over the last year – will also result in supply easing throughout Abu Dhabi and Dubai during 2022 and 2023.
In 2020, new launches across the UAE were at their lowest levels since both 2004 and 2012, as these regulations came into play. Over the long-term, forecasts suggest this will help Dubai’s recovery, helping bridge the gap between supply and demand and reducing pressure on prices.
“Assuming these trends remain constant, mortgage rates remain at and 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,” said Knight Frank.
While this could be good news for long-term UAE investors, it does mean that those seeking more immediate returns would likely need to look elsewhere, which would go some way to explaining the rising foreign investment in the UK market.
UAE Off-Plan Hit by Squeeze on Steel
As the cost of importing steel and other construction materials increases, ongoing projects in the UAE are feeling the ‘squeeze’, with the potential for delays as developers wait for costs to correct themselves. Alternatively, we could see the costs being passed down, raising the overall purchase price of UAE property.
Experts suggest that a delay of two or three months could significantly impact the number of new properties being delivered. With around 40,000 new homes forecasted to be built in Dubai alone – up against the 30,000 delivered last year – this would impact a large chunk of the market.
As it stands, it’s expected that off-plan property prices will reflect these rising import prices, which comes with its own inherent risks. With this in mind, we’re already seeing a trend in the Dubai property market in favour of ready-made homes.
10 Year Residency Visas to Drive Demand?
Since its announcement in 2019, there’s been hope that the 10-year residency visa will help drive demand for property and increase business activity across the region, mitigating the declines currently occurring across the market.
The ‘Golden Visa’ is designed for investors, as well as specialist workers such as engineers and doctors, allowing the applicant to live, work and study in the UAE without the need for a national sponsor. For those opening businesses within the region, it provides 100% ownership of the business, even on the mainland.
While this scheme is driving demand, it’s likely that the impact on UAE property will not be felt until later this year. The market is still facing challenges that create downward pressure – oversupply, a weak economy and strong local currency – which is making investments more expensive for those investing into the UAE.
With this in mind, UAE investors could find more success investing overseas themselves, leveraging the strength of the AED in affordable markets such as the UK. UK property remains a key asset for many investors and is demonstrating a quicker recovery from COVID-19 then many of its counterparts.
For savvy investors looking for affordability and long-term yields, regional UK cities will still maintain their allure throughout 2021 and beyond, especially as inwards investment continues to flow into the sector and regeneration transforms the lifestyle for tenants.