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Property market liquidity impacted by oversupply

 

Al Mazaya Report:Prices still blow target; Property transactions worth AED16.4 billion in UAE & SAR15.4 billion in Saudi Arabia recorded

The liquidity factor is the most influential criterion for evaluating real estate markets and identifying sources of supply and demand as well as investment paths.

The Weekly Real Estate Report of Al Mazaya Holding indicated that the performance of real estate markets in the region varies according to the level of activity, nature of the demand, the volume of property markets and sources of demand. There are real estate markets where domestic demand is more than 90%, while some others are aiming to raise the value of domestic and foreign investments permanently as they have already secured advanced levels of diversity and managed to meet all kinds and sources of demand.

The residential sector accounts for the largest share of real estate transactions executed in the region. Mortgage values record the greatest variance between one market and another, reflecting the financing activity and the demand for real estate loans for commercial and investment purposes, or for the purpose of reconstruction and construction of more real estate projects.

Investment, industrial and commercial properties were in noticeable demand during the past years in most of the markets in the region, reflecting the level of demand for investment in all sectors despite the pressures and major challenges that reflected directly on demand and transaction values, which in turn affected the overall liquidity values traded in real estate markets until the end of January 2018.

Liquidity in the UAE during January reached AED 16.4 billion compared to AED 18.2 billion at the end of December last year, showing a decrease of 9.8%. Sales amounted to AED 6.6 billion and AED 9.8 billion in mortgages. This decline is marginal and normal especially in the beginning of the year, where markets are testing points of strengths and weaknesses and investment opportunities available across all sectors, in addition to ensuring the nature of government plans and spending.

Al Mazaya report says that real estate developers launching stimulus packages  through the launch of many  projects with payment facilities is a good step that  will stimulate purchases. Prevailing prices seem to go more for the benefit of retail investors and companies, and the expected declines in prices will stimulate demand, with investors seeking to wait from time to time for lower prices.

We can safely say that actions taken during the past year and until now reflect the market’s ability to overcome the challenges and ensure that it will continue at the same pace for the next three years at the very least.

The scene seems more diverse and complex in the Saudi real estate market during the last year until the end of January this year. The decline in real estate prices in the Saudi market continues to be between 15% and 35%, especially for residential more than commercial and investment units.

The Saudi real estate market is expected to witness further declines in the coming months in line with the current plans of the Ministry of Housing.

On the other hand, industry data showed a decrease of 18.4% in real estate transactions to SAR15.4 billion at the end of January compared to SAR18.9 billion during the same period last year.

Al Mazaya said that the application of VAT is partly responsible for the decline in transaction values. The average daily trading value declined to SAR1.2 billion, after the record high value of transactions in December last year, which accelerated the disassociation of property owners in anticipation of the introduction of VAT on real estate transactions.

Al Mazaya report pointed out that the Bahraini real estate market expects a rise in the values and volumes of sales during the coming period, based on the prices traded, which decreased as a result of the large increase in the supply of real estate units, which affected and will continue to affect the sales market, where industry data indicate an increase in the supply of property to more than 4,000 units during the 2017 and 2018, and to an expected 7,000 by 2020.

Al Mazaya Report says that the prevailing economic conditions, lack of liquidity and difficulty in accessing debt financing affected the willingness of buyers and investors to invest in ready-made units, which had a negative impact on the values and volumes of transactions executed during the past year. The problem of oversupply requires appropriate solutions before they get worse, said the report.

The volume of real estate transactions in Bahrain exceeded BD1 billion at the end of 2017, with the real estate sector contributing 6% to GDP. The Real Estate Sector Regulation Law is expected to go into force by the beginning of March this year, which aims primarily to attract more investments to the Kingdom and push the pace of economic growth.

Al Mazaya report considers liquidity levels in the Omani real estate market as good until the end of the last year, saying that it is facing more pressure due to higher supply and lower demand in general. The total value of sales executed during December last year was OMR128 million  compared to OMR177 million at the end of November in the same year, which means that investors from inside and outside the country are waiting to buy property  at more attractive prices.

According to Al Mazaya, economic indicators in the Sultanate prove the availability of good investment opportunities and reflect a recovery in demand during the current year, as a result of the government’s efforts to raise the GDP growth rate to more than 5%. Expansion recorded on the activities of tourism and hospitality sector plays a role as well in providing more opportunities to establish fresh projects on distinguished sites in the capital and beyond.