Ultra-wealthy buyers enable Dubai property sector to escape six-year slump
Tags: Valustrat, Real Estate, Dubai

Dubai’s property sector has been an unlikely beneficiary of COVID-19, with the ongoing pandemic sparking a long-awaited turnaround in 2021. Prices in neighbouring Abu Dhabi have also increased, but performance in Saudi Arabia´s main cities has been mixed, and Qatar has endured another tough year.

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After a six-year slump, sales prices were up 4 percent year-on-year in both Dubai and Abu Dhabi as of September 30, according to consultants JLL. Faisal Durrani, Partner and Head of Middle East Research at Knight Frank Middle East, attributes the rebound to what he describes as the UAE’s excellent governance and the way in which the country has handled 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.”

The IHS Markit UAE Purchasing Managers’ Index surged to 55.7 in October, its highest level since mid-2019. Such bullish indicators show local companies are confident, said Durrani, and this upbeat outlook has also aided real estate.

Dubai’s reopening of international borders brought in an influx of ultra-wealthy visitors who had never 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.”

This led to a surge in sales of so-called super-prime properties (those priced at more than $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.”

Villa prices are up 17 percent in the past 12 months, according to estimates by Knight Frank. Yet oversupply remains problematic and could derail Dubai’s property rebound. Around 80,000 new units are scheduled to be completed in 2022, which would be highest annual total since 2009, said Durrani (he noted, however, that a third will probably be delayed).

In September, property worth more than 12 billion dirhams was sold in Dubai, making it the busiest September on record, according to Knight Frank. In October, sales fell 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.”

From Dubai’s 2014 high, property values fell more than 40 percent, according to leading real estate consultancy ValuStrat data. It also shows an increase of about 15 percent in 2021 after bottoming out last year. This rebound still leaves values at about 30 percent below their peak.

Apartment prices, which constitute 85 percent of residential units, have made single-digit gains this year, ValuStrat estimates.

“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.

ValuStrat research shows that the average size of homes sold in Dubai has risen to around 2,000 square feet this year from 1,000 square feet in 2019. Tuaima notes that this reflects 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 in Dubai, it’s the low-to-mid tier properties that have had the biggest price increases in Abu Dhabi, outperforming more expensive homes, although the UAE capital is markedly more lacklustre than Dubai.

In Saudi Arabia, government measures to increase home ownership among nationals towards a longstanding target of 70 percent have helped bolstered construction activity in the kingdom´s real-estate sector as well as demand from end users.

Yet property values in the two biggest cities, Riyadh and Jeddah, have diverged. Residential prices in Riyadh rose 5 percent year-on-year as of September 30, with demand underpinned by state initiatives aimed at making the capital the Gulf´s business hub, according to JLL. Residential prices in Jeddah fell 5 percent over the same period in what JLL describes as a subdued market.

Recent indicators have also been less encouraging. Sales volumes slumped in the third quarter, which JLL blamed on procedures to obtain a mortgage becoming more onerous.

The performance of Qatar´s property sector is largely dependent on government spending, said Anum Hasan, the Qatar research manager at ValuStrat, Doha. According to ValuStrat estimates, prices across all subsectors (residential, office, retail, and hospitality) have been in steady decline since 2016, dropping more than 40 percent.

The market showed tentative signs of stabilisation in 2019, but COVID-19 derailed this recovery, quashing 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.”

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