One common feature is shared between the UAE, Saudi, and even the GCC as a whole. Apartment and home prices are moving up. But the reasons that lie behind this are so different.
Residential values- Dubai
Home prices in Dubai jumped 21% this year thanks to the government’s response in arresting the spread of COVID-19, according to a study by global property consultant Knight Frank.
Developers are responding by pushing the envelope and bringing 10,000 dirhams per square foot (sqft) homes to the market, but overall residential values are still about 30% below 2014 peak prices.
According to Faisal Durrani, Partner-Head of Middle East Research, Knight Frank, halting infection rates in the UAE “played an incredibly strong part in driving villa prices up by 14% since January 2020.”
“While values are still creeping up, anecdotal evidence points to an emerging delta between seller and buyer expectations, a classic sign of a rising market that may soon stall. In fact, total transaction volumes in October dropped to 11.2 billion dirhams ($3.05 bn), a decline on the previous month.”
According to the analysis by Knight Frank, non-resident, ultra-high-net-worth individuals are flocking to the city to buy expensive properties.
Buyers from Monaco, Switzerland, and China are driving an even sharper rebound at the top of the market, Knight Frank noted.
“$10-million-plus home sales now account for 7% for all transactions in the city by value, compared to a long-term average of just 2%,” Durrani said.
The most expensive areas in the city are experiencing the sharpest turnaround in values, with apartments in locations such as The Palm Jumeirah (+14%) and Downtown Dubai (+8%) outperforming apartments (-3.1%) in general, since the start of the pandemic.
Similarly, villas in Mohammed Bin Rashid City (+19%), Dubai Hills (+18%), and the Palm Jumeirah (+17%) have accelerated ahead of the wider villa market.
Residential values- Saudi
Apartment prices in Saudi increased at the fastest pace in five years, spurred by a government plan to boost home-ownership by building affordable housing and offering cheap loans.
Wafi and Sakani programs churned 160,000 households in H1 2021.
In the capital, Riyadh, and the Red Sea port city of Jeddah, apartment values increased 17% and 12% respectively over the past 12 months, according to data by Knight Frank.
There were 45,000 transactions during the third quarter of 2021, Knight Frank said in a report, but values were still very reasonable.
Apartment prices in the Dammam Metropolitan Area (DMA) have risen by 5.5% in the year to Q3 2021, while average villa prices have declined by 1.9% over the same period.
Durrani said: “Two-bedroom apartments for instance, on average, cost 2.4 times annual incomes, compared to a multiplier of 2.7 back in 2016, well within globally accepted affordability thresholds.”
Durrani said it was now becoming more ‘socially acceptable’ for a family to buy an apartment as their first home among the younger demographic of the country, 56% of which are below the age of 35.
Knight Frank said its outlook for the Riyadh residential real estate was buoyant, with 730,000 homes in the supply pipeline by 2030, yet a shortfall of at least 420,000 homes.
Prices of single-family homes aren’t rising as quickly as apartments, partly because they cost anywhere between seven to 12 times annual incomes, Durrani said.
The kingdom aims to lift homeownership to 70% in 2030 from about 60% today.
GCC residential real estate dynamics
The GCC real estate value transacted in H1 2021 reached $64.9 billion. Full-year figures for 2020 reached $90.5 bn and $96.5 billion for 2019 in comparison, according to Kamco Invest, a Kuwait-based investment, strategy, and research firm.
“A higher average value per transaction was achieved for key markets in H1 2021, when compared to H1 2019, pointing towards the investment appetite for attractively priced real estate,” the report said.
Further, developers capitalized on the demand and offered rent-to-own schemes, fee waivers, and lucrative post-hand-over payment plans during the period.
Real estate equity indices in all GCC markets barring Qatar witnessed strong double-digit percentage gains in the first half of 2021.
The Refinitiv GCC Real Estate Total Return Index gained by 22%, while the MSCI GCC index moved up by 22.6% over the same period, the Lamco Invest report said.