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Property Oversupply Impacts Real Estate Prices

An elaborate, well-thought out oversight mechanism is needed to regulate the region’s realty markets

The Gulf property market continues to achieve good results despite the multifaceted challenges besetting it, locally and internationally. However, the region’s countries still vary in terms of recovery levels, which are directly determined by the forces of demand and supply, real estate investment liquidity and a tendency toward property ownership among locals, residents or foreign investors in the region. This discrepancy in market performance has had a direct bearing on the visibility of ongoing projects, and ultimately, on selling and rental rates.

Al Mazaya Holding’s weekly real estate report indicated that the variations in demand and supply levels from one market to another lead to volatility in rates and performance and consequently, in potential investment returns.

The report added that several residential projects and thousands of new properties will be up for grabs in 2017 and over the coming years as a direct result of the decline in major industrial and trade platforms and government enterprises. It referred to the growing possibility of a further decline in demand, especially if the completion and handover of property units continue to meet delivery schedules.

The report added that real estate activities in the region will not come to a halt despite the surrounding negative and positive developments. However, according to the report, property development companies and executives are required to develop a sound management approach to control the negative circumstances and accommodate their concomitant pressures.

The value of 2016-2017 property projects already under construction in the UAE is estimated at $629 billion, said the report, indicating that the UAE realty market is overseen by strict regulations to ensure the handover of residential units within the set timeframe. In this respect, it highlighted the delivery of 34,000 residential units in the UAE in 2016.

The report termed the Saudi property market as quite complicated due to declining property ownership levels among Saudi nationals, and a considerable rise in plot prices. While the execution of more residential units will have a positive impact on the Saudi property market, the launch of more investment projects will have negative bearing on the market, added the report. It highlighted on this score an announcement by the Saudi Ministry of Housing indicating that it will launch the first batch of a housing project in collaboration with the private sector and banking sector. The housing project will include the launch of 380,000 residential and investment units across the KSA to be handed over in 3 years.

A state of upward activity has been witnessed by the construction sector in Qatar, which is described by the report as among the region’s most buoyant markets, with delivery of projects and residential and commercial units having started more than one year ago. More projects continue to be launched on the market, which means more activity over the medium and long terms. More than 60,000 residential units and around 700 towers and residential blocks will have been handed over in Qatar until the year 2020, which means that any decline in demand or increase in supply of residential units and offices are likely to negatively impact the market, expose investors to considerable risks as a result of difficulties they might face while selling or renting according to prevailing prices. Bank-funded projects may also face considerable challenges.

Rental prices continue to decrease in Abu Dhabi, said the report, expecting the decline to be up to 15 percent and even more due to the oversupply of new and old flats and declining demand. The Emirate of Dubai is likely to be going in the same direction, with rental prices having decreased by up to 5 percent during the 4^th quarter of 2016. More dips are expected by the time around 31,000 residential units and 12,000 villas will have been delivered during this year in a number of locations across the emirate. In the meantime, the decline in rental rates reached 25 percent in Saudi Arabia last year.

In conclusion, the report stressed the need for an effective oversight mechanism to follow up the handover and supply of residential and commercial property on a constant and permanent basis in order to ensure stability on the region’s real estate sector over the coming and present periods. Demand is still below the required levels and present economic circumstances do not bode well for an accelerated demand over the coming period, which means that random deliveries of properties would create more risks.