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UAE Property Trends for 2020

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As we head into the new year, it’s the ideal opportunity to take a step back and check the state of property around the world. 2019 has been an eventful year and external factors are playing a huge part in various global markets. 

The UK property market, for example, continues to suffer from chronic undersupply. As unprecedented levels of foreign investment flood into key regional cores, prices in these key areas are rising against the traditionally popular London market. At the same time, uncertainty continues to drive the direction of the general property market.

In the UAE, however, it’s the opposite story. Property prices are expected to stagnate due to an oversupply of stock before recovery kicks back in around 2021. For investors in this market there’s such an abundance of properties that urgency is never really an issue and the UAE is struggling to reach the same levels of growth against the UK. 

As part of our wider 2020 trends forecasting, we’re examining the outlooks for the UK and UAE markets as we head into the new year, as well as some of the global property trends that will shape real estate in 2020.

UAE Trends in 2020

The UAE market has seen rents fall between 24% and 33% since their last peak in 2014. This has resulted in many Dubai-based investors looking to alternative markets for value, especially as real estate has such a large impact on Dubai’s GDP where property makes up 6.8%.

Taking a closer look at 2019 specifically, within the JLL UAE Property Market report we can see that rent prices fell by 11% during Q2, while sale prices fell by around 9% in the same period. For the Buy-to-Let investor, this raises obvious challenges.

When we look to 2020 and beyond, Matein Khalid, Chief Investment Officer at Asas Capital, believes: “The smart money consensus in Dubai property is for another 10 – 15% decline in prices amid a crash in rents, spikes in vacancy ratios and an accelerating pipeline of oversupply.” 

With the majority of mortgage enquiries for the UK during 2019 coming from the UAE, according to Skipton International, it’s no surprise that UAE investors are looking elsewhere as we move into the new year. With many domestic buyers in the UK market still holding fire due to uncertainty, international investors have an ‘easier’ route finding value in UK property when they can leverage exchange rates in more affordable areas.

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Oversupply in the UAE Market

Dubai has seen incredible growth in the last 18 years, growing from 156,000 to 560,000. This is expected to continue over the next 16 years and Oxford Economics predict that 176,000 more households will be created over this period. 

For the UAE, this has created a heavily saturated market with plenty of supply in the pipeline, contributing to a lack of competition that is stopping property prices from increasing. This is the opposite effect of what we’re seeing in the UK market and another clear indicator of why UAE investors are choosing international markets.

With the reduction in UAE property prices expected to slow down in 2020 – after shedding 23% of its value in the last five years – Analysts are predicting that Dubai is emerging as a mature market with prices stabilising towards 2021. Unfortunately, for the investor that wants to start building returns immediately, this may be too little, too late.

Brexit Uncertainty Impacts Purchasing

There’s no doubt that political uncertainty has proven to be an investment catalyst for overseas buyers. Favourable currency exchange rates have supported property buyers around the world and the UAE is no different. A weakened Sterling means UAE investors can leverage their money further from the get-go and affordability in certain regional UK areas means yields are much higher than you would usually expect.

Consider that in 2016, prior to the referendum, the average London property cost around Dh2.7m compared to today’s price of around Dh2.2m – an incredible 22% decrease in prices based on fluctuations in foreign exchange. 

With a general election around the corner, it’s likely that regardless of who comes into power, a decision will be made on Brexit and a deadline will be established. With a clear timeline of events, uncertainty will be less of an issue and investors can begin to plan their 2020 investments.

UAE vs UK in 2020

The term “buyer’s market” has commonly been used to indicate the phase that the Dubai property market is experiencing. WIth such a saturated market, UAE property is struggling to deliver the strong yields and growth that the UK market can and it’s not expected to start recovering until 2021.

While there’s relative affordability in the UAE, it’s expected that returns will only start appearing two-years down the line. The UK market, on the other hand, is demonstrating the opposite. While ‘affordability’ is a term that can be applied to certain UK regions, the market itself is incredibly competitive which means much higher potential to generate consistent, immediate returns.

Bahrain Property Market Outlook

Bahrain’s real estate market has witnessed a shift as development projects take shape and regulation becomes more prominent in the market. With the geopolitical nature of the region constantly shifting and property trends impacted by the implementation of the Real Estate Regulatory Authority (RERA), GDP growth has still expanded through 2019 and into 2020 at around 2.8%. 

At the same time, activity in the market has increased although prices continue to stagnate thanks to lower demand and an oversupply in the market. When it comes to property prices specifically, all four Governorates have seen declines between 2% and 4% since 2018 – though the decline slowed towards the end of 2019.

Similarly, apartment rentals faced a downward trajectory, with the Al Muharraq and Southern Governorates hardest hit at 2.4% and 12.7% respectively.

Demand in the region has also largely been focused on the hospitality and commercial sectors thanks to lower headline rental rates and the popularity of the Bahrain Grand Prix. That said, this doesn’t translate into residential demand during the short-term, which may rely on plans to expand the country’s national airline in the future.

With this in mind, many investors in the region looking for emerging growth in the near future are looking further afield, to more stable markets that can deliver immediate yields as well as property growth. 

Saudi Arabia Property Market Outlook

Economically, Saudi Arabia saw growth slowing in 2019, where the country registered a marginal increase of 0.2% compared to 2.2% in 2018. This is expected to recover back to 2.2% in 2020, although headline growth is still much lower than expectations.

In terms of the residential market, the sector has been a key focus for government initiatives recently with a range of regulatory reforms aimed at boosting activity in the sector. This led to a positive boost in transactions throughout 2019 that is expected to continue in 2020, although sales price performance tells a different story.

Experts agree that Saudia Arabia is much more sensitive to unexpected changes in the economy – it’s the biggest and most populous country in the GCC – which could result in weaker prices and rents across various verticals. JLL has highlighted that residential sale prices declined by 6% year-on-year in their 2019 report and as non-resident workers continue to leave the country in their droves, residential performance would be the first to feel the impact. 

Kuwait Property Market Outlook

Marked against a positive backdrop of activity, the Kuwait property market is expected to have a much better performance during 2020 than previous years. With the first signs of recovery coming in 2018 after years of security concerns from investors, new large-scale and mixed-use developments are helping push economic growth.

For investors, a major consideration in the Kuwait property sector is the limited supply of land. While this has driven prices considerably, it has created a bottleneck in meeting demand and created a much more competitive market.

This has led many investors to consider overseas markets such as the UK, where Middle Eastern investors have funnelled money into ‘secondary’ cities such as Birmingham and Glasgow, which are demonstrating higher growth, large-scale regeneration and more immediate returns. Kuwaiti capital accounted for a huge proportion of the transactions last year with deals ranging from £5.96 million to £170 million and it’s expected to continue as developments come to fruition.

Oman Property Market Outlook

Oman’s property market has largely been affected by the economic challenges the country has faced in recent years. At the start of last year, property values fell by 10.7% compared to the same time in 2018, hitting an average price of £74,832.

Unfortunately, 2020 is forecasting more of the same as the residential market remains subdued due to readjusting salaries, job losses in key sectors and an overall lack of demand against supply. Muscat, for example, is witnessing declining rent and purchase prices due to oversupply and a widening gap between available units and demand. 

Despite this, an expanding young population and the completion of several important development projects is promising a brighter future. As the Government passes several initiatives to attract new tourism and diversify the economy, it’s expected trends will take on a positive trajectory going forward which could mean wider growth opportunities.

Qatar Property Market Outlook

Qatar’s property market has been one of the major casualties of the blockade imposed by other GCC states in 2017 due to political reasons. Residential prices are down by around 10% since 2017, while rents are down 20%, showing the challenges that the country has faced, particularly in attracting overseas investment.

Yet, as the 2022 World Cup edges closer, it’s expected that the influx of associated development may reverse the sector’s fortunes – alongside several reforms to foreign property ownership law designed to encourage foreign buyers.

Demand is still an issue, however, especially post-2022. While the supply is being created, many experts agree that it’s difficult to imagine where the demand may come from once the World Cup has ended. “There’s too much uncertainty as to where that demand specifically is going to come from,” says Richard Rayner, who surveys property for real estate company DTZ.

Conclusion

So what’s next? As previously mentioned, the recovery of the UK’s property market from external factors is well documented. Prices in London alone skyrocketed by 70% after 2009, making it one of the most lucrative assets in the world. 

Since 2016, various UK markets have seen similar growth, although the spotlight has moved to regional cores throughout the UK. While these cities are set to continue growing, the South East is also seeing incredible growth as key markets emerge amongst the London Commuter Belt such as Slough, Bracknell and Basingstoke.

Nearly 5,000 miles away, Dubai’s real estate market is on the rocks and rental prices are taking the brunt of the fall. This has highlighted that maybe now is the time for UAE investors to start considering how the UK can play a part in their financial future and start their property portfolio.  

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