Details

Due to price falls; abundance of supply; digital developments

 

Real estate brokerage faces unprecedented challenges that require restructuring, regulation

Al Mazaya Report: Current period ideal for smart investor to capture investment opportunities at competitive prices

Allowing homeownership for residents most important factor to survive current recession on Omani property market

Real estate transactions across the GCC region have recently been falling short of their own targets for desired levels despite the diversity in real estate projects and products offered.

Prices of various real estate products have continued to decline, due to the fluctuations in demand factors, and the fall in investment liquidity and in speculations, which used to ratchet liquidity values to record highs and trigger unjustifiable and inconsistent price hikes in the past. As prices continue to fall and supply is overshadowed, many services and professional sectors related to the real estate sector, namely real estate brokerage, is becoming less attractive due to the developments recorded in the end-user’s direct relationship with owners, as a result of the multitude of online brokerage services available.

Saudi Arabia’s real estate market has seen consistent declines in prices, rents and real estate products, and this is reflected in need for brokers, the report says. The lower prices of real estate and the greater the supply in the market get, the less is the need for realty brokers. The end-user under the current circumstances is not required to pay commissions to brokers as long as supply is higher than demand and access to owners and to negotiate with them is easier.

The report says that the continued decline in prices and in speculations has reduced the importance of the real estate market in terms of investment, with individuals inclined more to seek homeownership rather than investment. The market recorded a decline of 10% in 2017, a decrease of 1.5% during the first quarter of 2018 for the residential sector, and by 1.3% for the commercial sector during the same period of the current year.

In the UAE, the real estate market has always had a great investment value for all parties concerned. The market has retained its attractiveness for investors and  end-users, who are seeking to execute attractive real estate deals with a price advantage, said the report, noting that the highest pressure in the UAE real estate market during the past three years has been on the luxury property sector, which is expected to remain under more pressures over  the coming period than other categories and real estate products offered in the market, especially those targeting the middle-income segment.

The real estate market in Dubai witnessed some slowdown, with property  prices falling by 5% year-on-year, apartment sales declining by 5% and villa purchases down by 5.5%, a drop of 7.5% year-on-year.  Apartment rental prices dropped by 7.2%. Rental rates for villas were down by 10% during the same period. Due to such developments, the Emirate of Dubai is getting geared for adopting the self-real estate scheme, which will allow investors to make real estate decisions without the need for red-tape documents, which in turn will reduce the need for real estate brokerage. Al Mazaya Report stressed that the current period, despite the recession, is one of the best periods for a smart investor to capture investment opportunities at competitive price levels.

The report pointed to the Bahraini real estate market, which is largely following the government’s trends and plans, moving up and down according to the impact of the supply and demand forces on the pace of performance. This coincides with the government’s focus on attracting more investors to strengthen economic performance, which recorded a growth rate of 3% at the end of 2017. In the meantime, the overall economic performance is often positively or negatively affected by the performance of the real estate and retail sector, which is growing exponentially and is expected to continue on this level for many years to come.

Within this context, housing rental prices fell significantly during the first quarter of this year by 3%, while the residential real estate market is expected to remain volatile due to supply and demand fluctuations. This comes in light of the government’s directives to develop plans to regulate the real estate market and  draw investments to make the Kingdom of Bahrain the first destination for real estate investment. This comes in addition to the development of a strong regulatory framework for buyers, that requires official licences from competent bodies that are concerned with the establishment of a robust and resilient  property sector.

The report sheds light as well on Oman where, it says, the overall performance of the real estate market is below expectations, which is a natural result of the increase in supply, a steady drop in demand, and ultimately a 20% decline in prices. It is noteworthy that the absence of a comprehensive regulation of the real estate market has contributed to this rise in supply which led to a significant price fall.

On the other hand, the Omani real estate market is witnessing more reviews among all parties in order to legislate laws that would allow residents to own outside tourist zones through which the supply can be accommodated and accordingly encourage investment and rebalance demand-supply forces. Industry data indicate that there are about 10,000 housing units on supply on the market. The real estate brokerage sector needs more effective regulation in order to identify sales and purchasing operations whereby trust between all parties and control of the market as well can be ensured.

The report pointed out that the pace of real estate activity in the region is getting more random and less predictable. New projects continue to be launched on all residential, commercial, investment and industrial levels while  demand is fluctuating almost sharply in many markets. At the same time, the region’s markets are getting more open, and within this perspective, the picture seems more blurry in terms of the performance and the future of the real estate sector investors, who get active in times of imbalance of supply and demand forces in favour of demand and not vice versa. This is in addition to the developments taking place on the real estate market where developers can promote, sell and rent directly and the change in the relationship between tenants and owners at the present time, which contributed to reducing the activity of real estate brokers and limited their impact on the pace of activity, and on prices as well.

The report underlined the importance of stimulating economic sectors and pumping more large strategic projects to spur real estate activity. In addition, it stressed the urgent need to re-organise the delivery of real estate projects, a step which requires direct intervention by all parties involved to ensure rebalancing of supply and demand forces.