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Falling Property Prices Delay Investment and Urban Projects

Not every rise will lead to demand-pull inflation

The Gulf region’s property markets could be affected by myriad challenges in the current and upcoming periods, including a potential state of recession that is likely to trigger a price fall.

In its weekly real estate report, Al Mazya Holding predicted that the ongoing and upcoming pressures might reflect negatively on realty investments as many of the real estate development companies and individuals in the region would wait for further declines in land plot prices before pumping money into the markets and launch new construction projects.

Starting with the Dubai realty market, the report mentioned that 2015’s price plunges continued in 2016 as well, reaching an average of 10% as a result of the financial and business pressures the Gulf markets have gone through. The continued property demand from individuals and developers led to a price plunge as growing investment opportunities increased demand and pushed up the number of property projects targeting the limited-income segments of society. Furthermore, the plot prices in Dubai recorded a remarkable rise of approximately 15% in commercial and residential plots sales made for the purpose of investment. The report also cited the 50% hike in the prices of land plots adjacent to Dubai Water Canal. In the meantime, commercial plot prices in Abu Dhabi dropped by around 10% since the beginning of the year until the end of the 3rd quarter as a result of slowing demand.

Likewise, the Saudi property market registered a remarkable fall in the prices of lands for sale – for example, villas, buildings and flats – in the wake of the government’s policies that aimed to rationalise market prices and bring them back to normal. In addition, supply outpaced demand for all property products after a large segment of contractors, including companies and individuals, sold off their property to secure the liquidity needed to pay off their debt obligations and meet operating expenses. The report noted that land prices in the Saudi market plunged by more than 30% during the current year, with prices of residential plots of lands having fallen by 19% by the end of the 3rd quarter. A further rise in land and property sales is expected during 2017.

The Qatari property market went through several positive and negative developments during the current year following the considerable rise in the supply of plots and property, which, in turn, caused a delay in launching many further projects. Statistics indicated a 35% fall in land prices, indicating that the decline trend is likely to continue during the 1st quarter of 2017 to around 10%, owing to the decisions taken with the objective of pumping more liquidity into the market to finance new projects, according to the report.

The realty landscape in Bahrain is a bit different, revealed the report. This is attributed to the limited volume of land available and the increased population density along with the positive investment laws adopted by the Bahraini government to provide momentum to freehold and other types of real estate projects. The end result is a rise in prices of all residential, commercial and investment plots of lands.

In the Omani real estate market, real estate transactions by Gulf investors fell by more than 25% due to a state of saturation in the market. The report highlighted the Omani government’s intervention to boost investments and limit the negative impact of the unjustifiable rise in land prices owing to the growing influence of real estate brokers’ practices. Such unstable conditions in the Omani market caused a large number of investors and buyers to shy away from the market. Rather, they seek to purchase ready-made flats and villas, a tendency which typically led property prices to soar by 20%-40% in different parts of the Sultanate, following the growing urban expansion trend witnessed nationwide. Furthermore, the report also referred to the factors that have negatively affected the supply-demand mechanism in the country.

On the whole, Gulf realty markets face neither market nor funding illiquidity, but rather, is still affected by the implications of the post-global financial crisis era when the property sector has witnessed a boom since early 2012. Realty markets recorded variable rises in price that was justifiable only at times, driven by cycles of high demand and low supply.

Conclusion

The report stated that falling oil returns and the decline in spending have significantly contributed to the fluctuations witnessed by Gulf property markets, noting that the price slides recorded in some real estate sectors by the end of the year are not to be viewed as negative forecasts of the coming period. The report stressed that it is just as true that not every rise would necessarily lead to demand-pull inflation, as the situation differs from one location to another and from one country to another.