One in two Dubai realty investors plan to 'hold on'

More than half (52 per cent) of investors in Dubai’s real estate market intend holding on to their property assets while more than a quarter plan on building new property or buying afresh, according to the just released Real Estate Investor Sentiment Survey by Jones Lang LaSalle (JLL).

Interestingly, only about one-fifth of investors plan to sell their property, equal to those that plan to buy, suggesting equilibrium among buys and sellers in the Dubai market.

“Results from this survey indicate that the Dubai market has an equal number of potential buyers and sellers, a change from the sentiment six months ago when buyers outnumbered sellers by around eight per cent,” the JLL report points out.

“However, the majority of investors still prefer to ‘hold’ assets in Dubai. This remains the largest percentage of ‘hold’ among all Mena markets, with other GCC markets and Abu Dhabi coming in second and third, respectively. This may be indicative of the unwillingness of investors to sell assets at a loss.

“Overall, the ‘hold’ sentiment has decreased across the majority of markets, and range from 52 per cent in Dubai to 14 per cent in Egypt , decreasing by nearly 10 per cent over the last sixth months. This may be due to the fact that markets have started to enter the consolidation phase and products meeting the requirements of buyers are trading more freely,” the report argues.

The JLL report maintains that the expectations that Mena markets are either close to bottoming out or have started to recover is reflected in the general improvement in sentiment. The future real estate performance in all markets across the region except the UAE is perceived as being more positive than six months ago.

“Although Dubai continues to show a negative net balance, sentiment has improved by over 70 per cent from the survey conducted in April 2009, when uncertainty was at its peak for Nakheel and its parent company [Dubai World]. Since restructuring initiatives were announced by the government however, sentiment towards Dubai has remained relatively stable, underlining the improved confidence of investors and the ease of the market as compared to other regions in Mena,” the report says.

However, investment sentiment towards the Abu Dhabi market has weakened over the past six months, driven by a general slowdown in the economy, continued tight liquidity and the inter-relationship with the Dubai market.

Nevertheless, JLL opines that the future prospects for the Abu Dhabi market remain bright, driven by a number of factors. “The outlook for oil prices and productivity remain positive, driving GDP and generating revenue surpluses that can partially be re-invested into the economy in the medium term. The weight of sovereign and private wealth, combined with the government’s commitment to economic development and infrastructure will ensure that Abu Dhabi’s real estate markets will recover over time,” it says.

Still, the anticipation of new supply in the pipeline across all sectors is also causing rents in Abu Dhabi to fall from their unsustainable highs of the boom years.

Saudi Arabia, on the other hand, continues to be regarded as the market most likely to see price increases over the next 12 months, although this has decreased slightly compared to the October 2009 survey.

The other Mena markets where most investors expect to see growth in real estate values over the next year include Egypt, Levant, and North Africa.

JLL maintains that investment sentiment in the region seems to have shifted northwards, away from the GCC and towards North Africa. “This is reflected in the high build/buy levels indicated and the resulting opportunities to either develop new product or purchase existing stock in these more populous and less mature markets,” it says.

“It appears that investors are less focused on the GCC region (with the exception of Saudi Arabia) and are actively seeking opportunities in other real estate markets for diversification purposes,” it adds.

However Saudi remains a key focus for investors. “The ‘build’ sentiment is strongest in emerging markets such as Saudi Arabia and Egypt, where investors still perceive there are opportunities to profit from development.

“Most of the major markets across the Mena region currently have more potential buyers than sellers of real estate assets. This sentiment is consistent with results from our previous survey (April 2010) and the underlying problem still seems to be the limited availability of suitable, investable grade product and a lack of competitive debt finance rather than a lack of potential buyers,” it adds.

According to the survey, yield expectations have increased in all MENA markets over the last year, reflecting a continued concern over risk assessment, financing costs and a potential oversupply in many asset classes across all markets.

Results from JLL’s four prior surveys indicate a low in October 2008, with average yield expectations peaking in April 2010. Its October 2010 survey results suggest that average yield expectations may have stabilised over the past six months, indicating an improvement in price expectations and a possible recognition that prices for income producing core assets may have reached the bottom.

Yield expectations have also increased across all market sectors over the past 12 months.

The hotel sector has demonstrated the largest increase in yield expectations growing from an average of 11.3 per cent in October 2009 to 12.4 per cent one year later. The residential sector has also seen a 70 bps increase in yield expectations, reflecting the substantial increase in supply in most markets in the region.

It is interesting to note that there is relatively little distinction in yields between locations and sectors suggesting that all markets move together, though this is not typically the case in reality.

According to JLL, Dubai continues to have the lowest yields, reflecting investor confidence in a market that is more mature and better regulated than others in the region. “Our experience suggests that actual yields are lower than yield results from the survey, especially for prime core-type assets in Dubai,” it says.

“Although Dubai remains the most challenged in terms of short-term market outlook, it continues to feature highly on investor target lists due to the more liquid market environment, advanced infrastructure and the ease of doing business,” JLL adds.

“While yields expectations remain in double digits, JLL has lead transactions at sub 10 per cent yields for prime core-type assets.”
 

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