Details

Al Mazaya Holding’s Weekly Real Estate Report:

The Real Estate Sector Successfully Overcomes Pressures and Drawbacks From the First Half of 2016

Estimates on economic performance of the majority of region’s countries for the current year have ranged from continuation of recession to difficult recovery, supported by expectations of further cutbacks in oil prices and the downward trend of government spending on development projects. These factors are in addition to the expectations of continued political tensions at the regional level, impacts related to finance activities, and supply and demand indicators.

Remarkably, major economic sectors – particularly within the real estate sector – revealed adaptability to market conditions and also showed further indicators of resistance to recession. Hence, we can say that the overall performance of economic sectors is good when compared to the size of surrounding pressures and risks, irrespective of their regional or global sources.

Al Mazaya Holding’s Weekly Real Estate Report points out that the overall performance of the real estate market during the first half of current year was good and occasionally reflected several strength indicators, flexibility and solidity. Moreover, there was a marked dissimilarity in real estate markets’ ability to deal with the reported economic and financial circumstances. In this context, it’s worth mentioning that real estate development markets, at the project level, have proceeded uninterruptedly at a good pace, in spite of the reported slowdown and late payment. The dues of real estate developers are accruing as a result of a reported state of confusion and chaos of governmental cash flow movement on a regional level, indicating cutbacks in liquidity available for investment in major sectors.

On the other hand, trends of interest rates have not had a negative impact on the real estate sector or supply and demand forces during the first half of the current year. Their impact has remained somewhat neutral, as bank interest rates have not witnessed considerable rises in finance prices. Moreover, the banking sector has maintained its number of grants to finance real estate products, a matter which has helped mitigate the severity of expected recession and decline.

Al Mazaya’s Report tackled the performance of the UAE’s real estate market during the first half of current year, which witnessed further activity, flexibility and correction of prices that prevailed this past year. The report asserted that, in this regard, the ultimate goal of real estate markets in the UAE and neighboring markets is to maintain their gains, avoid sharp price cutbacks, and maintain their investment attractiveness at the internal and external level. It is relevant here to point out that real estate activity pace has witnessed relative declines in growth rates of commercial real estate market, in addition to a decline in the number of commercial projects under construction. This comes amidst fluctuations and fierce competition witnessed by the logistic and industrial services sectors, while the hotel sector has been able to maintain its pace of activities due to its diversity, attractiveness and infrastructure development projects.

The housing sector absorbs a considerable share of real estate movement – it has kept its stability during the first half of 2016 and has not reported any sharp declines, with the possibility for the sector to have more attractiveness during the second half of current year, particularly in foreign investments. It is noteworthy that the Emirate of Dubai is looking forward to increasing its global financial and economic shares.

The government of Dubai has also launched Dubai Wholesale City. Moreover, real estate companies are focusing on luxury and middle-class housing projects as well as hotel and retail projects. The first half of current year witnessed the launching of 39 new projects at an investment cost exceeding AED 57 billion. This extended for a period of up to 7 projects, with the private sector absorbing the largest share.

Al Mazaya’s Report states that indicators of the Qatari real estate sector revealed, during the first half of current year, growth at the level of construction and building, in addition to a higher demand for vacant lands given an improvement of local and foreign demand indicators over the coming period, and, on the other hand, prices of villas and apartments kept improving.

It is worth mentioning that the major investments in Qatar have been increasing. Besides the continued completion of infrastructure and large-scale real estate projects – marking further activity and momentum – taking into consideration the importance of the government role in activating productive economic sectors falling within the development plans being currently implemented. Furthermore, the Qatari real estate sector maintained its leading position as the foremost sector, which brings the largest returns to investors, thus representing the most competitive sector to oil and gas. Furthermore, the activity pace in the real estate market during the same period has constituted a basis for classifying investment in the real estate sector among the safe investments at the level of domestic and foreign investment, backed also by high returns, liquidity, and stability at the intermediate and long-term. Given the varying investment opportunities provided by the sector, which enable high return rates, real estate activities are considered most profitable and represents one of the most liquid markets.

 

Al Mazaya’s Report adds that the Saudi real estate sector’s performance was beyond expectation during the first half of current year, with decline indicators dominating the prevailing prices, while sale and purchase transactions witnessing a state of recession. This is a direct result of the tax imposition on white lands, a matter which had a negative impact on the supply and demand forces and which are still in favor of the supply, with a predominant state of awaiting and caution in the real estate market in respect of all decisions for purchase of ready real estate by buyers who abstain from buying any property over this period until the situation becomes clearer. In addition, prevailing land prices during the first half will be positively affected by the government trends for preventing the encroachments and recovering the lands located on the outskirts of major cities, a mater which means an increase in the land supply to be redistributed to beneficiaries. It should be noted that prices of housing lands located on the outskirts of cities marked a decline up to 40% at some locations, while the decline within cities marked up to 20%.

It is worth mentioning that the Saudi real estate sector was not negatively affected by the fall in oil prices up to the end of the first half of 2016, while the prevailing political tensions have not brought about any pressure on the sector’s activity, given the nature of the demand for real estate in the Kingdom, the source of which are predominantly Saudi nationals.

Regarding real estate market liquidity for the region’s countries during the first half of 2016, Al Mazaya’s report points out that the market has kept good liquidity, but is still beyond expectations and below the corresponding levels reported during the same period of past years. This is in addition to marking increases in fluctuations from time to time. Remarkably, values of investment liquidity in general are affected by government trends as well as investment decisions of the private sector, the banking sector’s plans and trends.

It is noteworthy that the value of transactions made in Dubai during the first five months of current year marked AED 24 billion, while total value of mortgage marked more than AED 27 billion. The Saudi real estate market recorded an increase in the value of transactions up to the end of the first half, amounting to SAR 229 billion, of which the housing sector accounted for SAR 137 billion, and the commercial sector accounted for over SAR 91 billion. On the other hand, the reported values of real estate transactions in the Qatari real estate market reported a decline by 56% during the first quarter of 2016, as compared to the same period of the past year, which focused on villa compounds and vacant lands.

Al Mazaya’s report implied that the pace of financial and economic activities faces further pressures and challenges with cash flow, liquidity values, and the level of waiting and caution which push towards further fluctuation in performance indicators of the major economic indicators. On the other hand, real estate has revealed good performance indicators during the first half of 2016, which reflects that the sector was able to maintain a good pace despite the pessimistic expectations that were prevailing at the end of 2015.

The report reiterates that the real estate sector is still negatively affected by the decline in oil prices as well as political tensions, while the strong signs from the banking sector, continued lending transactions and price retracement levels from the real estate sector have helped maintain the attractiveness and stability of the UAE in the first half of 2016.