UAE market enters transitional phase

 

    25 January 2018


Despite the subdued conditions, there has been continued sales activity in both the commercial and residential sectors in 2017 – says JLL


According to JLL’s 2017 Year in Review, the real estate sector continued to adjust to lower growth being the “new normal” with all sectors of the market remaining in the downturn stage of their cycle.
“The UAE real estate industry is entering into a transitional phase, with VAT now in effect and key stakeholders seeking to decipher its immediate and longer term impact. Although VAT does not apply to residential rents and sales of new residential property, other real estate sectors could be negatively impacted by increased costs and cash flow challenges,” says Craig Plumb, Head of Research at JLL MENA.

Despite the subdued conditions, there has been continued sales activity in both the commercial and residential sectors in 2017, according to JLL. Four major commercial (office and retail assets) properties transacted in 2017 (with a combined value of more than USD 340 million). The purchasers were all major institutional investors, who recognize the potential uplift in the value of selected properties obtained in periods of depressed market conditions.
“The majority of sales in the residential sector have been concentrated in the off-plan sector, where developers have been offering particularly attractive

prices and payment plans. A total of 25,600 off- plan properties were purchased in Dubai in 2017, with 2017 set to record the highest level of off-plan sales in Dubai since 2008,” says the property consultant.
The JLL report also notes that the Dubai economy is expected to increase more quickly than the UAE average in 2018. “This is partially a reflection of the 20% increase in government spending announced in the 2018 budget, with a major portion of the increased spending on infrastructure, and projects related to the hosting of Expo 2020,” according to JLL.


Residential snapshot

In its report JLL provides a summary of the Dubai residential market. According to the property consultant, by 2020 a total of 570,000 units of new supply could enter the market, representing an average annual increase of 8%. “Oxford Economics says that Dubai’s population is expected to grow an average of 3% per annum, this undoubtedly suggests that market absorption rates will be less than the levels of new supply and thus a large number of residential units may be left vacant.”

Residential stock in Dubai is estimated at approximately 491,000 units at the end of 2017, with apartments accounting for more than 80% of total supply and reached approximately 403 thousand units, while villas reached 86 thousand units. Looking ahead, JLL maintains that the near completion of several residential developments will likely see up to 17,000 quality apartments enter the market in early 2018.

“The Dubai residential market has weathered many cycles from growth (2001-2008), to decline (2009-2011), to recovery (2012-2014), to its current status of soft landing. The recent activity in the market suggests that confidence has returned to both investors and developers, however it is worth noting that the number of new launches are significantly below their peak levels in 2006/2007 and the volume and the value of sales are also below levels recorded during 2013/2014,” concludes JLL.