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The Gulf Real Estate Sector Survives Challenges in 2016 and Maintains its Competitive Edge Regionally and Internationally

Al Mazaya Holding’s Weekly Report Projects Positive Results for 2017

The Gulf real estate sector maintained a limited upward momentum and achieved fairly positive results in 2016, contrary to expectations that it was to sustain heavy losses and bubbles that would create considerable challenges in the industry at present and in the future, according to market indicators.

In its weekly real estate report on 2016’s results, Al Mazaya Holding said that the Gulf realty market went through fast-paced and multi-faceted developments last year, atop of which were the unsteady liquidity levels and the shaky demand for residential, commercial and investment real estate projects. These developments took different forms that had their bearing on each of the region’s realty markets, and ultimately, affected the demand for all types of property projects.

The report noted that the challenges and lessons learned from 2016 should be utilised in 2017 and over the years to come to develop the sector in a way that ensures it will maintain its competitive investment edge in local, regional and global levels.

Mortgage rates have remained stable over the past year. Real challenges have been the provision of collaterals, rather than the interest level, as the banking sector tended to improve funding conditions while requiring more solid guarantees due to the prevailing state of uncertainty and the difficulty to provide reliable future forecasts.

The UAE realty markets were the most active in the region with regards to mortgage transactions that remained at a level of 3%-4%, which shows that interest rates were both attractive for the clients and satisfactory for banks, therefore keeping demand at positive levels despite the unstable liquidity levels all over the region.

With regards to the construction sector, the last year witnessed several fluctuations as a result of the decline in government spending levels and the drop in oil returns. However, there are real estate projects under construction, valued at around $ 2.6 trillion in Qatar, UAE, and Saudi Arabia, despite all the challenging conditions the sector has been going through, including the fall in the number of contracts and projects.

There is a remarkable discrepancy between the region’s markets with regards to budget deficits, spending plans and investment priorities as well as the volume of contracts being carried out. It highlighted that there has been a 15%-30 % slump in sales witnessed by construction material markets all over the region.

With regards to the values of real estate transactions and sales in 2016, Saudi Arabia recorded the highest slump in the value and number of real estate transactions made in 2016 – an estimated 23%, which equals SAR 281 billion, compared to SAR 368 billion in 2015. The report attributed this to the decline in residential land values which hit around 32% in two years only.

In Dubai, real estate transactions were valued at AED 113 billion by the first half of 2016. This amount is attributed to the set of laws and regulations endorsed in 2016 that played a significant role in reducing the value of transactions and sales, with lands and residential property transactions dominating the entire real estate landscape and absorbing most of the cash available.

Rental rates reached their climax in 2016 and then dropped, owing to a number of factors, atop of which were the falling demand levels due to the unstable economic conditions and decreasing investments allocated to major economic platforms. This indicates that several Gulf states have, as a result, started a correction policy to bring things right back to their previous normal course.

On this score, rental markets in the UAE reported a price decline by the end of the 3rd quarter of 2016, with Dubai posting a 5% fall in flats and 7% in villas’ rental prices. The Qatari market followed suit but with different levels as per property type and total space.

The report highlighted the slip in liquidity levels and in the value of land and residential units, with Saudi Arabia posting 44%, 9%, and 29% declines in the prices of residential land, apartments and villas respectively.

Dubai recorded a 10% fall in property prices, while in Qatar, the decreasing levels averaged 10%, forecasting a continued drop in prices of residential units, land and villas all over the region in 2017. This decrease is due to government tendencies to correct pricing after the sharp rise witnessed across the region’s markets over the past period as well as buyers’ willingness to wait for property prices to reach certain levels.

The report noted that Gulf real estate markets managed to survive the challenges of 2016 and maintained their competitiveness in foreign real estate markets, including Turkey, Europe, US and Britain.

Conclusion

The fall in property prices will reflect positively on the levels of property sales over the coming period, and the declining rental rates are most likely to provide tenants with more options that cater to their needs, said the report, concluding that the fluctuations in real estate markets are likely to persist in 2017 so long as oil returns remain unstable.