The property sector in Dubai escapes six-year slump because of ultra-wealthy buyers
COVID-19 has had an unexpectedly positive impact on Dubai’s property sector, with the ongoing pandemic sparking a long-awaited turnaround in 2021. While prices in Abu Dhabi have also increased, performance in Saudi Arabia’s major cities has been mixed, and Qatar’s economy continues to struggle.
As of September 30, sales prices in both Dubai and Abu Dhabi were up 4 percent year-on-year, according to consultants JLL. As Partner and Head of Middle East Research at Knight Frank Middle East, Faisal Durrani attributes the rebound to the UAE’s strong governance and the good handling by the country of COVID-19.
“That’s when its third property cycle commenced,” he said. “Dubai is a sentiment-driven market, and positive sentiment like that goes an extremely long way.”
IHS Markit UAE Purchasing Managers’ Index rose to 55.7 in October, its highest level since mid-2019. According to Durrani, these indicators show that local companies are confident, which has also been beneficial to real estate.
The reopening of Dubai’s international borders attracted wealthy visitors who had not previously visited the emirate, said Durrani. “They saw first-hand the way Dubai handled the pandemic and the city’s high living standards and quality of life.”
The result was a surge in sales of super-prime properties (those priced over $10 million), with 54 sold in the first nine months of 2021.
“That’s a record,” said Durrani. “There aren’t enough of these properties to satisfy demand. That has contributed to a sharp turnaround in the luxury end of the market, which is where we’re seeing the fastest price increases.”
Knight Frank estimates that villa prices have risen by 17 percent in the last 12 months. Oversupply, however, remains a concern and could derail Dubai’s property rebound. Around 80,000 new units are expected to be completed in 2022, the highest total since 2009, said Durrani (although a third will probably be delayed).
Knight Frank reports that more than 12 billion dirhams worth of property was sold in Dubai in September, making it the busiest September ever. In October, sales dropped to 11 billion dirhams.
“This could be the first sign that the market is approaching its third peak (after 2008 and 2014),” said Durrani. “Anecdotally, there’s a growing disparity between buyer and seller expectations. Usually, that’s a clear indication that the market is starting to peak. While COVID sparked the start of a third cycle, it also created a very short cycle.”
According to ValuStrat data, property values have fallen more than 40 percent since Dubai’s 2014 high. Also, it shows an increase of about 15 percent in 2021 after bottoming out last year. However, values remain about 30 percent below their peak.
According to ValuStrat, apartment prices, which account for 85 percent of all residential units, have made single-digit gains this year.
“As most people live in apartments, they’re not really seeing significant price or rents increase,” said Haider Tuaima, the head of real-estate market research at ValuStrat, Dubai.
According to ValuStrat research, the average size of homes sold in Dubai has risen from 1,000 square feet in 2019 to 2,000 square feet this year. Tuaima notes that this was due to people moving from apartments to villas as well as to larger apartments. “The cash is there. Most buyers in Dubai are UAE residents and end-users. More people are becoming homeowners.”
Unlike Dubai, Abu Dhabi’s low-to-mid-tier properties have experienced the biggest increase in price, outperforming more expensive ones, although the UAE capital is much less vibrant than Dubai.
Government initiatives aimed at increasing homeownership among Saudi nationals to a long-standing target of 70 percent have boosted construction activity in the kingdom’s real-estate sector as well as end-user demand.
However, property values in the two largest cities, Riyadh and Jeddah, have diverged. Residential prices in Riyadh rose by 5 percent on the year as of September 30, with state initiatives attempting to make it’s capital a major business hub in the Gulf, according to JLL. Residential prices in Jeddah fell 5 percent over the same period in a subdued market, according to JLL.
The recent indicators have also been less encouraging. JLL blamed the slump in sales volume on a more difficult process to obtain a mortgage during the third quarter.
Anum Hasan, Qatar research manager at ValuStrat, Doha, said Qatar’s property sector is heavily dependent on government spending. Since 2016, ValuStrat estimates that prices across all subsectors (residential, office, retail, and hospitality) have declined by more than 40 percent.
Despite some tentative signs of recovery in 2019, COVID-19 derailed this recovery, halting the temporary increase in demand that had been expected ahead of the World Cup.
Average residential prices were down 5 percent in 2021 compared to 2020, according to ValuStrat. “In the last two quarters, we’re seeing signs of the market stabilising again, with a few areas showing increases in rents and capital values,” Hasan added. “Overall, 2021 has been another year of declines, but it hasn’t been as bad as 2019 or 2020.”