UAE property rental and sales prices fell in the first half of 2017, but they could rise again in the near future.

1. UAE Real Estate Market
Struggling, but Hope for
the Future Remains
DR. EHSAN BAYAT

2. UAE Real Estate Market Struggling, but
Hope for the Future Remains
• According to the United Arab Emirates (UAE) Real Estate Trends
2017 report released by Propertyfinder Group, real estate prices
weakened in the first six months of the year across Dubai and Abu
Dhabi. The drop in rental prices outpaced sales, which has
produced rather depressing yields for investors who had hoped to
enter the rental market.
• The declines are related to a wide range of different factors. First,
construction levels remain high, so the market is being flooded
with new properties, as demand catches up with supply. Moreover,
the global economy has had a major effect, with a historically
strong dollar making UAE property rather expensive and European
investors liquidating due to low Euro and British pound values.
The lower price of oil has also had a strong bearing on the market.

3. State of the UAE market
• The report, which examined prices from September 2016 to March 2017 in 23
Dubai neighborhoods, found that rental values fell in 21 districts and sales
prices fell in 17 of those. Downtown Dubai, which is the most expensive area to
buy, realized a 6.7 percent decrease in prices, the largest drop in any sector.
However, even less expensive areas like IMPZ and Dubailand had serious
declines. A few areas actually had some gains in value, most notably Jumeirah
Village Circle, Sports City, and Al Furjan, but these areas all have seemingly
little in common except perhaps the availability of new, ready-to-go apartments,
which remains an undersupplied segment.
• Despite the falling yields from rental properties, the returns remain fairly high
by international standards, with returns on apartments at nearly 10 percent in
certain areas. Perhaps because these returns are already fairly high, investors are
more willing to drop prices to compete in the market, which could explain
greater falls among rental prices in comparison to sales prices.

4. • In Abu Dhabi, sales prices fell in six districts out of eight with the
greatest drop at nearly 12 percent. Rentals are also in retreat in the
capital city. Falling oil prices have reduced government spending
and employment, thereby reducing demand. A separate report by
JLL showed further declines in residential and hospitality markets
during the second quarter of 2017 in Abu Dhabi, although retail
and office markets remained stable. The report also blamed
reduced government spending and job cuts for the poor
performance. Uncertainty in the job market and a reduction in
housing allowances have forced individuals to seek out cheaper
housing options.

5. Hope for the future
• Despite the grim reports about real estate in the UAE, there is hope for the
future. According to Propertyfinder, the company has had a 40 percent increase
in page views for UAE real estate compared to the year before. Many individuals
may be motivated to buy due to the drop in prices. Already, there is a major shift
in the Dubai market, which was formerly led by investors. As a result of the
cheap prices, more end users, and especially first-time homebuyers, are
purchasing property.
• Many of the primary investors in Dubai real estate, including Russian and
British nationals, have moved out because of exchange rates, Brexit, oil prices,
and other issues. Now, the major investors typically come from India, Egypt,
and Saudi Arabia, as well as the UAE. The hole in the market has been filled by
an increase in end-user sales that take advantage of the unique payment plans
created by developers. Plus, some banks have developed creative mortgage
products to help first-time buyers. The deals mean that it has become more
economical to purchase than rent.

6. • While end-users are now flooding the market, there is always the
possibility that the tide will shift back toward investors, especially
if the value of the dollar weakens or oil prices increase, both of
which experts think will happen in the near future. Neither of
these factors alone would likely be enough to push investors back
into the UAE real estate market, but if they occur at the same time,
then investment is very likely.

7. Market direction will depend on supply
• JLL also points out that the future of Duabi real estate depends largely on how
much stock that developers have placed in their pipelines. Sales of completed
homes increased in early 2017, which suggests an increase in prices for the
second half of the year, but this largely depends on the number of new homes
that enter the market. By 2020, 78,000 new homes are set to enter the market
according to developers’ estimates. This amount would result in an oversupply,
which would drive down prices ever further.
• However, JLL suspects that the materialization rate, or the number of houses
that are actually delivered rather than expected completions, will prove much
lower at nearly 40 percent. The estimate would actually cause an undersupply,
which could cause prices to rise sharply as market competition increases. The
performance of the market will largely depend on the ability of developers to
deliver on their promises. A number of concerns about oversupply have already
been raised, so developers may scale back for fear of losing money if the market
becomes saturated.