GCC realty market set to stabilise in 2021

An anticipated tight supply of real estate units across the GCC subsequent to a temporary stoppage of new projects by some leading developers and fewer upcoming projects will help arrest the ongoing steep declines of prices and rents in 2021, Kamco Invest said on Sunday.

 

In 2020, Covid-19 has caused additional headwinds for end-user demand in the GCC’s residential real estate segment, driving rents and prices lower on a year-on-year basis in 2020, despite limited supply addition and several government initiatives for home ownership being rolled out, Kamco said in a research report.

 

Analysts expect a temporary freeze on new projects initiated by developers would help reduce the supply glut and rebalance the market in 2021, leading to a slower pace of fall in both rents and prices.

 

In Dubai, a higher committee for real estate was formed in 2019 to ensure that semi-government property companies did not compete with the private sector and to help rebalance a market where concerns of oversupply have pushed prices lower in recent years.

 

Subsequently, several government related entities decided to stop new developments almost a year back, but Covid-19 definitely put the brakes on.

 

Emaar, Dubai’s largest developer said recently that it was temporarily halting new projects amid a property glut that, combined with the pandemic, has shaved nearly a third off house prices in the past six years.

 

“The government entities decided to stop new developments almost a year back but Covid definitely put the brakes on,” Mohamed Alabbar, managing director of Emaar, said early in December.

 

Hussain Sajwani, chairman of Damac Properties, has also said new property launches had come to a halt this year. He expects new launches to recommence when Dubai’s Expo 2020 event begins in October next year.

 

In 2020, rents in all residential markets were under pressure, as tenants continued to downsize, migrate to more affordable residences, or looked for more incentives in their existing tenancy contracts, said the Kamco report.

 

“Covid-19 has caused additional headwinds for end-user demand in the GCC’s residential real estate segment, driving rents and prices lower on a year-on-year basis in 2020, despite limited supply addition and several government initiatives for home ownership being rolled out,” it said.

 

The decline in rents was higher than the fall in prices during 2020, as some sellers preferred to defer the sales of residential apartments and villas in order to achieve higher prices in the future.

 

Led by Kuwait with the steepest residential rental fall of 15 per cent, Dubai recorded 13 per cent while Abu Dhabi saw rents dropping by seven per cent year-on-year.

 

“Looking ahead, the residential market is expected to remain under pressure until segment fundamentals such as number of households and employment rates improve. Moreover, we expect developers to continue offering a range of incentives such as fee waivers, discounts and rent-to-own agreements, combined with home finance options to attract new investors looking to take advantage of the lower prices,” the report said.

 

Analysts at Kamco expect developers to continue offering a range of incentives such as fee waivers, discounts and rent-to-own agreements, combined with home finance options to attract new investors looking to take advantage of the lower prices.

 

According to Kamco, sale transactions in the GCC from January-October 2020 declined from a year ago, as total value transacted receded by four per cent to $72.1 billion from $75.5 billion. Saudi Arabia contributed to over 52 per cent of the value transacted, while the UAE added 21.6 per cent to the region’s aggregate figure.

 

However, the average value per transaction in the GCC increased by 7.6 per cent to around $166,105 from around $154,365 in the same period in 2019.

 

The number of GCC-wide transactions until October fell by around 11 per cent to 434,158. The lower year-on-year transaction volumes and value transacted was largely due to the impact of Covid-19 on real estate demand and its various sub-segments.

 

“Moreover, the signs of a bottoming out of transactions witnessed in 2019 will now be more prolonged into 2021 in our view, until normalised demand conditions arrive in a post-Covid environment.”