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UAE real estate on the rise.

Summary: Real estate in Dubai and Abu Dhabi is once again coming up roses. What's behind it and is it sustainable this time? Recent reports from Cluttons and Standard Chartered reveal

You could be forgiven for thinking that the property market in the United Arab Emirates is something of a stomach-churning rollercoaster ride. From the head-spinning highs of 2008 to the sudden plummet and crash of 2009 and heading skywards again in 2013 as prices once again soar - is it sustainable this time or are we in another bubble? Here, we take a look at some of the trends and results of real estate in Abu Dhabi and Dubai.

ABU DHABI

Huge investment and the controversial government requirement for all public servants employed in Abu Dhabi to reside in Abu Dhabi by 1 September this year is aiding a real estate revival in the capital.

In September, Cluttons released its first annual property report on the UAE. It stated that the Executive Council of Abu Dhabi has announced plans to invest up to AED 330 billion in the emirate's economy over the next five years, which is aimed at stimulating economic growth and aiding the expansion of the non-oil segment of Abu Dhabi's economy. Already, there's been an upturn in the number of new business licenses issued and the number of people employed across the Emirati capital during the first quarter.

RESIDENTIAL

According to the Cluttons Property Report, the upturn in employment, coupled with the government's requirement for an estimated 20,000 public sector workers residing in other emirates to have relocated to Abu Dhabi by 1 September, is helping to reduce the magnitude of the residential supply overhang.

"The rising level of housing demand is evidenced by a 13.2 per cent rise in average capital values for apartments during the first half of 2013," states the Cluttons report.

"Average price increases for high end apartments on Reem Island over the same period stood at 15.9 per cent, more than double the overall residential growth rate across the capital of 7.3 per cent. In contrast, high end apartment values contracted by -3.3 per cent on Reem Island last year, while apartment prices slipped by -4.4 per cent across Abu Dhabi during 2012. Villa's on the other hand, have experienced capital value rises of 22 per cent during H1, underpinned by the strong performance of villas on Sdiyat Island. Al Reef Villas registered price growth of 15.1 per cent in the six months to June, positioning it as the strongest performing villa submarket. Al Reef's proximity to Sheikh Zayed Road (E11) and ease of access to both Abu Dhabi Island and Dubai makes it a sought after residential community, particularly for families, which is helping to underpin value growth. Golf Gardens and Hydra Village were the weakest performing villa submarkets, with no capital value increases recorded between January and June this year. The majority of housing requirements stem from households relocating to the capital to comply with new government regulations, in addition to new job starters in the healthcare, education and hospitality sectors."

OFFICE

Office supply continues to remain in excess of occupier demand, states the Cluttons Property Report. "Prime grade-A rents are however holding steady at between AED 1,700 and AED 1,800 psm, while more secondary offices, in locations perceived to be inferior, are still experiencing rent reductions, dipping to just below the AED 1,000 psm mark. It is office space in older parts of the capital that are expected to experience further downward rental adjustment given the focus of demand on modern space. With no significant boost to office demand levels expected in the near term, it is unlikely that we will see a turnaround in office rental value growth this year."

RETAIL

The Cluttons report states that the retail market in the capital offers a more positive outlook, despite the additional 200,000 sqm expected to complete this year at Deerfields Mall, Emporium Mall at the Central Market and the newly opened Galleria at Sowwah Square. Abu Dhabi has long lagged Dubai in terms of its retail offerings. "However with over 600,000 sqm of additional retail space already projected to complete between 2014 and 2017, we expect to see the capital's malls follow a similar strategy to those in Dubai, creating lifestyle destinations, providing niche entertainment and leisure attractions. Crucially, we expect these new shopping malls to serve as anchors for future residential and commercial development, serving surrounding communities, mirroring the impact of the likes of The Dubai Mall (Downtown Dubai) and Mall of the Emirates (Barsha). These malls have been the catalysts for housing and office demand in their respective submarkets and Abu Dhabi's new mega malls are likely to act as the foundation blocks for similar future growth."

DUBAI - THE BIG TURNAROUND From a devastated market in 2009 to soaring prices in 2013, Dubai has emerged bruised but not battered from the bubble burst and once again, things look positive... but is it sustainable growth this time?

According to Standard Chartered research into local housing market, prices in Dubai are rising on the back of strong demand and much-improved economic fundamentals. "Following a sharp contraction in both prices and volume of transactions in 2009, Dubai's housing market began to recover very gradually in 2011. Slowly but steadily, confidence has returned to the market. Q2-2013 marks the fourth consecutive quarterly increase in residential prices. In the past twelve months, residential prices have increased by 38 per cent for apartments and 24 per cent for villas, with rents increasing by 20 per cent and 17 per cent, respectively," states the Standard Chartered report.

FLIPPING OUT

"The sharp increases in property prices in 2008 were driven by excessive short-term speculative activity, especially on off-plan properties. For these properties, buyers only had to put down 10 per cent deposits (rather than the full price), so the market became highly leveraged. Many buyers never had the intention (or the funds) to pay the future instalments as they planned to flip the property before any payments were due. This turned the housing market into an unsustainable, highly-leveraged derivatives market."

It was therefore no surprise that in 2009 there was a sharp correction in housing prices, accompanied by a rapid decline in property transactions. In 2012, the emirate witnessed a positive uptrend in sale and rent prices, with sale prices improving faster than rents. The uptrend continued in 2013 with Q2 marking the fourth consecutive quarter of Dubai's property uptrend.

Is it different this time though? Or is Dubai setting itself up for another painful bubble burst? According to Standard Chartered, this time there are important differences.

"The housing market is influenced by broader economic trends. Dubai's economy has experienced solid and sustainable rates of growth over the past three years. The key drivers are logistics, hospitality and retail. This looks set to continue, particularly when it comes to logistics, which contributes 14 per cent to GDP (Dubai Chamber of Commerce and Industry). We expect trade to increase in the years to come on the back of the increased spending plans of most governments in the region, including Abu Dhabi, Qatar and Saudi Arabia. Tourism is also expected to grow at an average of 6.5 per cent per annum between 2011 and 2021, pushing up employment growth for the sector by 4.1 per cent/year, according to a Dubai Chamber of Commerce and Industry study," states the report.

POPULATION GROWTH

"Demand for housing is rising, due to Dubai's population growth. The city's population is the second-largest in the country, after the capital Abu Dhabi, and is largely comprised of expatriates. The population increased from 2.0 million in 2011 to 2.1 million in 2012, according to the Dubai Statistics Center. We expect it to reach 2.2 million in 2013.

"Dubai is cementing its status as a safe haven in a region of political and economic turmoil, attracting people from unstable countries around the Middle East/North Africa region, with property-listing agencies reporting an increasing interest from buyers from countries in political turmoil."

So what's the ultimate conclusion that Standard Chartered have come to through their research?

"The recovery of Dubai's housing market started in 2011. It has set the scene for a slow, strong and persistent rise in housing prices, pulled by real demand for housing from end users and a steady supply of new developments to match it. The market seems to be driven by fundamentals rather than excess speculation, in contrast to what the market went through in 2008. The outlook of the market will therefore depend on how these fundamentals evolve over time. Right now, we conclude that there are no serious indications of a speculative bubble in the housing market."

To read this and future reports: www. cluttons.com/dubai or contact Cluttons in Dubai on: +971 (0) 4 334 8585 for further information.

" Following a sharp contraction in both prices and volume of transactions in 2009, Dubai's housing market began to recover very gradually in 2011. Slowly but steadily, confidence has returned to the market"

" Crucially, we expect these new shopping malls to serve as anchors for future residential and commercial development, serving surrounding communities, mirroring the impact of the likes of The Dubai Mall"

2013 CPI Financial. All rights reserved. 2011 CPI Financial. All rights reserved.

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Publication:Wealth
Geographic Code:7UNIT
Date:Nov 5, 2013
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