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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Short-Term Property Rentals Set for a Comeback
With Coronavirus halting travel and tourism industries, short-term rental markets have suffered extensively. While this trend is apparent across the globe, it’s impact has been particularly apparent in the UAE, where the country’s popularity as a holiday destination is undoubtedly a big contributor to its economy. In 2019, the contribution of the tourism industry to the wider GDP equalled 11.5%, further supported by 2.3 million people visiting for business purposes alone.
However, the promise of a successful Coronavirus vaccination programme in the coming months is offering hope for the return of the tourism industry. Although many experts have suggested that an absence of travel may have completely dissolved the appeal of the UAE to international visitors, the glimpse of freedom between lockdowns has only contradicted this. Instead, many experts are anticipating ‘pent-up’ demand from travellers, which is expected to only propel the short-term rental market.
The changing perspectives towards remote working will also only strengthen the rebound of this market. Businesses will no longer associate productivity with rigid, office environments, and are likely to continue offering flexible working options. This increased sense of freedom is expected to encourage travellers to prolong their trips, or take more throughout the year, with the option to work from anywhere in the world.
The growth of the short-term rental market is likely to accelerate advancements in other areas within the industry, especially surrounding technology. With an increasing focus on digital processes, more landlords and letting agents will utilise self check-in technology to promote contactless interactions. As we emerge from lockdown, and these digital processes evolve, the short-term rental market is expected to grow indefinitely.
Will ‘Hotelification’ Be the Key to Successful Commercial Property?
Before the global pandemic, the prospect of remote working caused considerable uncertainty amongst businesses, but many employees have thrived in their working from home set ups. That said, with government guidance set to allow office working in the coming months, are the changes to working culture here to stay?
The notion of ‘hotelification’ is the repositioning of residential, retail and office space, which could be the key to successful commercial property going forward. Over recent years, the most successful hotels have been those with strong identities and branding, where guests can live, dine and play. The strong sense of dynamism that this provides will be central to the hotelification of office spaces, which could include collaborative working environments and communal spaces for mixed-use purposes.
With the ‘work from home’ culture offering employees plenty of benefits including comfortable and relaxing surroundings, shorter (if any) commutes and more time to spend with family or friends, this higher standard of office space will have to act as an incentive to encourage employees back to the office. While flexible approaches will likely remain an option in the UAE, many expect that the office is here to stay, especially with this concept of hotelification.
As well as promoting collaborative working amongst employees, and fostering a greater sense of innovation, the hotelification aspect of commercial spaces will also benefit landlords. By offering spaces that meet the evolving demands of businesses and employees, leasing risks will be significantly reduced.
Find Out More About Investing from Overseas
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Here’s everything you need to know investing in UK property from overseas – from rental yields and property prices to the market’s reaction to the global pandemic.
Is Dubai Real Estate a Safe Haven For Investors?
Lebanon is in the midst of an economic crisis, which started in October 2019. From managing the effects of Coronavirus to recovering from challenging external factors, the economy is in a downward spiral.
As the economic landscape continues to worsen, Lebanon’s currency has plummeted to a new record low, following a 19.2% contraction in GDP during 2020. While the real estate market remains buoyant in Lebanon, largely due to supply issues, the combination of rising property prices and economic uncertainty is less than reassuring for prospective investors.
The devaluation of the Lebanese pound – which has lost 90% of its value – is a growing concern amongst investors, of whom are seeking out alternative, more reliable investment options to preserve their life’s savings. As a result, Dubai real estate has become a popular option for those searching for long-term investment assets. With transactions increasing 110% in recent years, the demand from Lebanese investors has made up a significant proportion of the UAE’s foreign investment.
3,000 First-Time Buyers Enter the Property Market
While the declining property prices we continue to see across the market are not ideal for those looking to list their homes, it is offering first-time buyers the opportunity to get on the property ladder. The economic challenges that came with Coronavirus have had ripple effects across society, with rising unemployment rates resulting in declining property prices.
However, the market is now more accessible to a wider demographic in the UAE, which saw 3,036 first-time buyers enter the market within the first two months of the year. Not only have first-time buyer sales increased 62% on 2020’s figures, but the rental market has also recorded a notable 57% rise in new contacts.
While Abu Dhabi reported a 4% fall in property prices during Q4 of 2020, year-on-year figures for Dubai yielded an 8% decline, both of which have been attributed to the economic fallout from Coronavirus. Despite the success of the vaccination programmes and the imminent return to some degree of normality, property experts are anticipating further falls in property prices, which will likely entice more first-time buyers.
Along with more affordable prices, the Central Bank of the UAE has offered more incentives for first-time buyers to enter the market. With 85% mortgages, the property ladder has never been (and probably never will be) as accessible as it is now.
The Rise of Off-Plan Property
In recent years, UAE investors have been more inclined to ‘flip’ their properties, with some even selling whilst construction is still underway. This secondary off-plan market is seeing sustained demand from investors, according to Property Finder. Even during national lockdowns throughout 2020, off-plan developments remained a more popular investment than traditional property in the ready market.
The popularity of the off-plan market has largely been attributed to the Covid-19 measures throughout the year. At the beginning of 2020, there was an excess of supply in the UAE market, but with stringent restrictions halting construction, investors had fewer options to choose from, subsequently reviving the demand for new, off-plan investments.
Specific areas in Dubai have been notably more popular for off-plan investments. Prime locations, such as Dubai South, Tilal Al Ghaf and Dubai Land have experienced higher demand for off-plan developments, especially The Madinat Jumeirah Living. With nearly 40% of transactions in November 2020 being in the off-plan market, developers intend to continue satisfying this demand throughout 2021.
However, international investors make up a significant proportion of the UAE real estate sector, causing experts to question the sustainability of this demand. As a result, PP Varghese, head of real estate strategy and consulting at Knight Frank, believes that the future of the off-plan market, going forward, will heavily depend on the global economic climate.