Led by the government supportive measures and strong economic fundamentals, the UAE real estate market is expected to be among the first to recover in the Gulf region and will manage to increase its share in the country’s GDP to double-digit again, according to the latest forecast.
Bahrain-based Taib Bank said in a research note on Wednesday that the UAE real estate sector to grow at an annual average rate of 4-6 per cent until 2015.
It projected UAE economy to grow at an annual average rate of four per cent over the next two years, led by stable oil prices and robust non-oil sectors such as construction, infrastructure, financial services, and real estate.
Led by the construction of UAE nuclear power plant and Emirates Railway projects, work on more than Dh110 billion worth of infrastructure projects are set to begin this year opening business opportunities for the construction and its affiliated industries. The Abu Dhabi Government has awarded more than $20 billion (Dh74 billion) worth of contracts to South Korean company to build nuclear power plants and would be spending an additional $11 billion (Dh40 billion) for the Emirates Railway network across the country. These high investment projects are expected to boost the expansion and diversification drive and improve the overall economy, in addition to providing a strong impetus to the real estate sector in the country.
The building and construction sector is the third-largest sector in the UAE and has benefited from the government’s strategic move to reduce dependence on oil revenues and emphasise infrastructure development.
Research and Markets said in a recent report that the UAE building construction industry is expected to witness contract awards worth an estimated $27.216 billion (Dh100 billion) in 2010 against $25.127 billion (Dh 92.22 billion) in actual building construction spending in the previous year.
“Although the recent Dubai World debt crisis led to panic selling among investors, we are optimistic about long-term growth based on buoyant fundamentals,” Taib analysts wrote in the report.
Research firm Business Monitor International (BMI) recently announced that the real estate sector accounts for about six per cent of UAE GDP even in the current post-crisis climate which, according to industry forecasts, is expected to rebound to over 10 per cent of GDP during 2011.
The global economic crisis led to a severe credit crunch that battered the real estate sector and crushed property prices by nearly 50 per cent in the Middle East. However, recovery in the real estate sector was swift owing to strong internal dynamics and the ambitious public infrastructure projects launched by governments in the region. The rebound in global economic fundamentals, coupled with the easing credit scenario, will rekindle investor interest in the sector. The construction sector continues to be one of the largest contributors to GDP in the Middle East and is estimated to be worth $1.6 trillion. In 2009, construction activities in the GCC region amounted to $726 billion, almost 60 times that of the construction value in Hong Kong.
Taib analysts forecast that the construction sector in the Mena region is likely to post an annual growth rate of 3.5 per cent over the next five years, surpassing Europe and North America.
Favourable demographics, robust economic growth, improving living standards, increasing affordability, and the $1.35 trillion worth of planned civil building projects in the GCC countries will drive property development over the upcoming decade.
The UAE’s population has grown at a compound annual growth rate (CAGR) of more than seven per cent since 2002 and is projected to grow at around five per cent over the next five years—from 5.19 million in 2007 to 6.88 million by 2011 — indicating strong housing and infrastructure demand potential. The government allocated almost $12 billion in the 2010 budget for infrastructure projects. “Going forward, we believe the global economic recovery, improving risk appetite, and normalising liquidity scenario will be key factors driving the UAE’s real estate sector dynamics,” it said.