Property prices in the UAE are projected to continue their decline through 2011 as thousands of new housing units enter the market and investors’ confidence remain weak, according to a Kuwait bank.
In contrast, prices are set to remain strong in Saudi Arabia, the largest Arab economy, given its high housing demand because of its large young population, Global Investment House (GIH) said in a study.
The study expected what it described as another tough year for the real estate sector in the six-nation Gulf Cooperation Council (GCC), where property and many other sectors have been hit by the 2008 global fiscal distress.
“We expect another tough year for GCC Real Estate, from a fundamentals perspective. We prefer Saudi Arabia, over other GCC markets, due to its underlying demand fortified by the country’s young population and high absorption of new supply,” the study said.
“The UAE will face another tough year but real estate equities could see price appreciation on improving market appetite and fresh funding. Tight bank lending to the sector, across the board, remains the key risk, in our view.
GIH said it expected housing oversupply, price declines and slow transaction volumes to again dominate market dynamics in the UAE this year.
“Both Abu Dhabi and Dubai residential markets suffer from the lack of investors’ confidence as new supply of 25,000 units are added to the former and 20,000 units enter the latter pressuring asset prices and yields downwards.”
“Commercial space oversupply to continue in 2011 as business demand remains feeble in the face of new deliveries. We expect occupancy rates to stay weak in both hospitality markets on new supply and slow business demand.”
Turning to Saudi Arabia, which has the largest GCC population of 27 million, GIH said the Kingdom’s structural mismatch in product offering is expected to drill into 2011 as pent up demand for affordable residential housing persists with a current shortage of around 700,000 units.
It said the pending mortgage law along with curtailed lending to developers and sluggish legislations on off-plan sales remain the major factors restraining affordable supply from the market.
“Hence, we expect price escalation of 10-15 per cent throughout 2011. We like Jeddah’s undersupplied office market as opposed to Riyadh’s saturated one and also see potential in both cities in the five-star hotel segment.”
In its study, GIH said housing investments in Qatar are expected to be directed away from the residential and office market towards hospitality and infrastructure projects after it won a bid to host the World Cup in 2022.
“Although a large share of the upcoming sector activity has already been priced in equity prices, we expect announcements of project awards by quasi government listed realtors to act as short term catalysts.”
“As for Kuwait, office space will show further weakness in 2011 as supply outstrips demand. Retail rentals are expected to experience an early crunch of the 290,000 square metre new supply entering the market between 2011 and 2013. Land plots and residential transactions have shown signs of recovery in 2010, a pattern we expect to continue in 2011 as the supply shortage in residential units for Kuwaiti nationals lingers on.”