While the UAE stimulus packages and easing of business regulations are positive and will provide some support to the residential markets, there is likely to be a time delay in these resulting in increased demand in the emirates’ residential sector, Knight Frank said in its research “UAE market Review and Forecast 2019” released Monday.
“Currently businesses are looking for short to medium term stability before committing to any expansion plans. In the short run, this hesitation impacts consumer confidence, which in turn impacts residential market activity in both the sales and rental markets. Therefore, until the expected increase in business confidence feeds through to consumer confidence, we are likely to see continued pressure on real estate prices and rents.” In Abu Dhabi, at the start of 2018, Knight Frank estimated that total 8,121 units would be delivered, however, to date initial estimates show that only 3,346 units have been delivered. In the capital, the lack of demand is the single largest contributor to the pressure exerted on prices and rents, therefore until “we see a notable improvement in the economic backdrop, we are unlikely to see any significant improvement in performance.”
In Dubai, while demand had eased in 2018, prices falls are more due to the considerable level of supply which has been delivered in 2018 and that which is expected to be delivered in 2019.
In 2018, Knight Frank forecast 32,727 units to be completed in Dubai, initial estimates indicate that to date we have seen 22,476 units delivered. This increase in supply, in addition to the unabsorbed supply from previous years has led to the extended pressure on prices and rents which we are witnessing, this trend is expected to continue throughout 2019.
While there are clear challenges facing the residential market, the recent approval of a range of legislations to ease visa and foreign business ownership by the UAE Cabinet are likely to drive addition demand to the UAE’s property market, given that many of the changes in visa regulations are linked to property ownership. The new visa legislations - which are expected to take effect towards the end of Q1 2019 and where all investments must be cash which is not loaned - include five year retirement visas for those over 55 years old, in return for investing AED 5 million or more in the property market or those with incomes of 20,000 per month or more or those with more than AED 1 million in capital. There are also options to be made available for non-retiree investors, where investors who invest over AED 5 million in property are able obtain a five year visa.
In addition to these property related visas there are a range of business investment visas have also been approved. Investors who invest over AED 10 million in enterprise can obtain a 10-year visa, where up to 40% of the investment can be related to property purchases.
Entrepreneurs in the UAE with previous business investments worth over AED 500,000 or those with a business which is accredited by a business incubator will be able to obtain a 5-year visa with the possibility of obtaining the aforementioned business investor visa, should they eventually meet the criteria. Finally, the approved legislation also allows for a10- year visa for high value talent in selected fields, as well as 5-year visa for students and their families, who are studying in the UAE.
Meanwhile, Dubai’s office market continues to see performance softening as a result of subdued market activity which has led to the market remaining tenant favorable. In Q3 2018, we have seen limited activity from new corporate occupiers, with new license issuances falling 9% year-on-year in the year to Q2 2018 according to data from Dubai Statistics Centre. The primary source of activity has come from firms looking to consolidate their commercial real estate portfolios or occupiers looking to downsize. On a positive note, these market conditions do provide opportunity for occupiers looking to take advantage of softer market conditions and as a result of this activity, landlords who actively manage their assets have fared better. More so, given this subdued market activity, we have seen rents soften across all segments of the market. Average office rents across Dubai softened by 5.8% year-on-year to Q3 2018, up from the 4.3% decline witnessed in Q1 2018.
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