Rents set to become more affordable

New supply and lower demand is expected to further push down rents and prices. Dubai Land Department said the total value of apartment, villa and land sales rose by 34.2 per cent, 69.7 per cent and 96.6 per cent respectively in October 2009 compared to the previous month.

This is a significant improvement after the emirate reported consecutive decline in the first half of this year.

As per Global Investment House (Global) report, Dubai's office prices went down 10 per cent, while rents declined four per cent in Q3 2009. Only Dubai International Financial Centre saw a positive change of six per cent in that quarter.

The office market in Abu Dhabi also witnessed a marginal decline of three per cent in sale prices in 3Q09. Rents fell between five to 15 per cent on Abu Dhabi Island, with off-island rents falling 20 per cent in 3Q09.

The rise in October data, according to Dubai Chamber, was due to higher demand buoyed by better job security prospects and easier access to credit financing.

The increase in transaction, it said, reflected the increased number of market participants in the realty sector.

Some have also suggested that the rise could also be down to an increased interest in distressed realty assets. Investment funds focusing on distressed property are on the rise in Dubai and these could help solve some of the challenges caused by disputes between developers and investors that have hit construction firms' cash flows.

"A combination of well planned mature developments in prime locations, supported by good facilities and a community infrastructure is expected to drive realty demand and in-turn prices up in the coming months ahead," Dubai Chamber said. It said the key concern driving the realty sector direction is the dynamics between market risk appetite and banks' willingness and risk profile to lend.

"So long as interbank lending rates continue to decline and investor confidence carries on rising, the realty market will clearly be on the road to recovery," it said.

It would have been more robust should the two biggest players in the mortgage market are active. However, until now Amlak and Tamweel are not lending. They stopped their lending since the fourth quarter of 2008.

"The mortgage market will pick up once the real estate market bounces back and starts to show some signs of recovery," Global said. Despite the absence of the two mortgage lenders, lending still happened albeit at slower pace. Figures from UAE Central Bank show mortgage loans increased by Dh11.4 billion in the first half of 2009 compared with Dh44bn in the first half of 2008. From Dh125.8bn at the end of 2008, real estate mortgage loans increased to only Dh137.2bn at the end of June 2009. They had jumped from Dh56.4bn at the end of 2007.

While the roadmap to recovery in the housing market has become more visible in the past few months, the announcement of Dubai World on November 25 of its intention to restructure the debt of Dubai World and Nakheel came as setback to Dubai.

"It shook investors' confidence in the emirate's ability to repay its debts which are close to $80 billion (Dh293.6bn)," Global said.

As soon as the Dubai Metro was launched on September 9, analysts began to forecast that in the long run, areas in the vicinity of Metro stations such as the Marina, Business Bay, Downtown, Burj Dubai, DIFC and the Trade Centre would witness increases in prices in the range of five to 15 per cent.

At the moment, it is too early to witness the effect of the Metro. Going forward, Global maintains that prices will continue to see a downward trend. In the Dubai residential segment, it said, prices and rents are expected to fall further, however, at lower rates than those witnessed in previous quarters. "While there have been a large number of projects delayed or cancelled, around 22,400 residential units are expected to be completed across Dubai in 2009," it said.

"In addition, with shrinking population, limited financing, and buyer delinquencies, we do not expect prices to bottom out before Q2 of 2010."

Same is the case in Dubai office space segment. According to Jones Lang LaSalle, 25 million square foot of additional office space is expected to enter the market by the end of 2011, which will increase vacancy rates and put further downward pressure on rentals.


Gulf scenario

Bahrain

While property prices in Bahrain have fallen by 10 to 15 per cent, the rental market remains stable and has in fact seen an increase in rental yields of up to 11 per cent, according to Bahrain Real Estate Association.

The retail market has also remained resilient. Despite the small size of the Bahraini population, demand for Bahrain's retail market is supported by the influx of Saudi population from the Saudi Causeway. Another causeway is expected soon, which will link Bahrain to Qatar. There was a shortage of prime office space in Bahrain. However, the financial crisis led to the contraction of many businesses and consequently demand eased. Additional space was expected in 2009-2010. But many projects, such as Aya Tower in Hoora, and the Signal One Tower in Amwaj Island, got delayed or cancelled.

Kuwait

The real estate sector continued its poor performance of last year.

Residential land prices continued to report a falling trend since Q2 2008 and up to the end of Q1 2009, but Q2 2009 reported signs of slight recovery as compared with Q1 2009. Prices picked up slightly in the range of 0.9 per cent to 4.2 per cent.

Rentals for both office and retail properties declined sharply during 2009. This was linked to the declining purchasing power of residents, whether nationals or expatriates. Moreover, demand for office space declined with the economic downturn.

Commercial properties rentals declined sharply during H1 2009 in the range of 15 to 30 per cent.

Global said the residential sector is expected to stabilise at current prices with marginal tendency to pick up in specific areas due to the latest cabinet decision to exclude seven residential areas from its 2003 decision regarding new residential areas construction permits. This decision is expected to help solve residential real estate problems by increasing supply. The residential segment is expected to witness price increases in 2010 supported by available financing through Shariah-compliant banks.

Generally, residential real estate segment will continue to play a major role in real estate activity. Commercial rentals on the other hand are expected to stagnate at current levels in different areas. However, the delivery of new supply will exert more downward pressure on rentals during 2010 for both retail and office space.

Oman

The real estate and construction sectors continued to grow in Q2 2009, according to the Ministry of National Economy in Oman.

The real estate sector grew by 14.6 per cent year-on-year, while the construction sector grew by 5.9 per cent, however, lower than the 61.9 per cent year-on-year growth seen in Q2 2008. The crisis had little impact on residential prices and rents, which are now stabilising.

According to the ministry, the price index for rent stood at 146.7 for nine-month period ending on September 2009 compared to 124.9 in the same period of 2008.

The residential and office segments of the sultanate are therefore stable, as per Global's forecast.

"Demand in Oman has been to a great extent endogenous. The population in Oman is growing, and around 43 per cent of Omanis are under the age of 14," it said.

"Industry sources estimates that 20,000 to 25,000 units are needed over the next few years to keep up with increasing demand. However, due to the financial crisis and the lack of financing we expect lower demand in the short term."

The hospitality segment, however, is set to see a downward trend due to a decline of tourists.

"In the medium term through 2011, we could as well see a major decline in the influx, as 44.4 per cent of Oman's tourist count is comprised of residents of the United States, the United Kingdom and other major developed economies," it said.

Qatar

Qatar real estate sector reported a declining trend during 2009 after reaching record highs during the boom period last three years.

However, currently Qatari real estate sector is showing signs of stabilisation and recovery is expected by H2 2010.

Generally, residential segment reported average declines in prices of 30 per cent on year to date terms.

The major declines were almost seen in prime locations and projects such as Pearl, West Bay and Lusail.

On the sales front, Q3 2009 continued to report stagnant activity where apartment sales declined in volume however; asking prices almost stagnated at the same level as Q2 2009 with developers trying to hold their prices while repackaging payment terms with lower deposit payments.

Declines were mainly reported in secondary market especially for Pearl project and West Bay.

This is mainly as owners of projects approaching handover are able to offer their units at prices much lower than developers asking prices while realising gains on their investments.

Saudi Arabia

Unlike other GCC countries, which saw significant leaps in prices during boom times, the Saudi property market grew modestly driven mainly by fundamentals rather than speculation.

So, the impact of the financial crisis on the market was not dire.

According to Colliers International, rentals and prices in residential units in Riyadh declined by an average of six per cent and 20 per cent respectively in Q3 2009 on a year-on-year basis. While in Jeddah, rents dropped by five per cent on average in 3Q 2009 on a year-on-year basis.

Keep up with the latest business news from the region with the Emirates Business 24|7 daily newsletter. To subscribe to the newsletter, please click here.

Follow Emirates 24|7 on Google News.