It’s not all gloom and doom. Backed by robust government initiatives, the UAE GDP climbed 2.2 percent in the first quarter of 2019. In the second quarter of this year, the government announced the much-anticipated freehold law in Abu Dhabi, while Dubai witnessed the latest boost in visa regulations with the launch of the long-term visas and the ‘Golden Card’ permanent residency system. Sharjah seems to be performing better year-on-year with increased real estate transactions. The formation of a higher committee to monitor supply and demand ahead of the expected Expo 2020 investment boom is another step in the right direction.
Yet, in the face of continued geopolitical uncertainty, volatility in oil prices, global economic upheavals and an oversupply in the local property market, there are still concerns that need to be addressed. While the UAE Real Estate Investment Market Report 2019 points to market resilience, undeployed capital and strong investor interest, the JLL market UAE Real Estate Market Overview 2019 expects market conditions to improve on the back of new government initiatives.
Ahmed Alkhoshaibi, the CEO of Arada spoke about all this and more in this exclusive interview with AMEinfo.
Graphic source: UAE Real Estate Report 2019 – Asteco
Oversupply in the market and impact on pricing during Q4 2019 and 2020
Ahmed Alkhoshaibi: It has not been the easiest couple of years for many property markets in the Gulf. This has been down to a number of reasons, but primary amongst these are the supply-and-demand situation, a slowdown in government spending, a sluggish economy and the knock-on effects on consumer spending.
There are, however, reasons for optimism. While some markets appear to be temporarily oversaturated, other markets are performing well. Sharjah, the market in which we operate, saw a far greater value of real estate transactions in the first half compared to the same period in 2018. Values have remained comparatively stable. Elsewhere, there are huge opportunities available in Saudi Arabia for developers with the skills and experience to meet the demands of a young and fast-growing population there.
In Dubai, I believe that a number of initiatives have the potential to reinvigorate the property sector. The introduction of a higher committee to regulate supply and demand and oversee urban planning is a huge step in the right direction. More people will visit the UAE next year than ever before when Expo comes to town, creating a unique opportunity for the real estate industry. We believe that, in part thanks to these initiatives, overall values will stabilize next year, before growing again at a more gradual rate. The reality is that the UAE is still an incredibly dynamic property market, and one that still offers yields to investors that are among the highest anywhere in the world.
Graphic source: UAE Real Estate Report 2019 – Asteco
Dubai’s higher committee to streamline real estate development
Ahmed Alkhoshaibi: The announcement of a new committee to streamline development in Dubai is incredibly positive one. It is yet another sign of maturity in a property market that has led the region for many years. Furthermore, it is also critical that in a market where the supply-and-demand situation is already a matter of concern that only projects that have the right scope and quality are allowed to proceed.
We are yet to understand exactly what the full mandate of the committee will be, but any initiative that brings developers and the government closer together will only help streamline processes, improve urban planning and create even better opportunities for buyers, tenants and visitors.
As a developer with ambitions to enter the Dubai market in the future, this is exactly the sort of message that we want to hear. I also believe that other developers, both locally and internationally, will also be encouraged by this news, which will result in greater foreign direct investment into Dubai over the long term.
Graphic source: Ernst & Young Expo 2020 Economic Impact Report
Expo 2020 and the outlook on the real estate market
Ahmed Alkhoshaibi: Expo 2020 will be a landmark moment for the UAE as a whole, and it will be a time when the spotlight of the world will be on our country. At Arada, we believe that the impact of the event will be positive for every industry not just real estate, and not just during Expo but for a long time afterward as well.
We’ve already seen reports from the likes of EY, saying that the event will have contributed over AED120 billion in value for the local economy by 2031. The expected influx of tourists to the UAE, as well as the investment in infrastructure and the creation of new jobs to service this event will all boost the economy, and more than 80% of the site is expected to be reused or recycled after the event is completed.
With regard to the property market specifically, it is critical that we take advantage of Expo 2020. More visitors will be traveling to the UAE than ever before next year, and this provides Arada with a unique opportunity to introduce ourselves to a wider audience from a branding and sales perspective.
Sharjah’s attractiveness and affordability for residents
Ahmed Alkhoshaibi: There’s no doubt that the property market has seen a difficult period in some parts of the Gulf. However, Sharjah is a unique market and has seen far fewer price fluctuations than other locations over the course of the last decade. Demand from Sharjah property has remained strong, and much of that credit has to go to the Government, which took a landmark decision to allow all nationalities to purchase real estate in the Emirate in 2014, and to allow all nationalities to buy property without a residency visa last year.
Evidence that demand remains strong comes from official statistics. In June, Sharjah Real Estate Registration Department, the government regulator, announced that AED14.7 billion had been invested in local property in the first half of 2019. This figure is already 65% of the total value of transactions for the whole of 2018, which proves that demand in Sharjah remains robust. Indeed, the highest number of transactions in Sharjah has come in the Muwaileh area, where our project Aljada is based.
From our own experience, I can say that the first half of this year has seen our two highest-performing sales months ever, in March and June. We have achieved those results by listening to our buyers, tailoring our products to the needs of our consumers and providing real estate investment opportunities that we don’t believe can be found anywhere else in the Gulf.
Rent to own facilities from developers
Ahmed Alkhoshaibi: Rent-to-own facilities have been employed by a number of prominent UAE developers in the past, but the segment is coming back into focus as one of a number of incentives that is allowing buyers to purchase property.
This scheme is particularly popular with consumers as there is no down-payment, the sales price is predetermined at the start of the contract – which means you are protected from price fluctuations – and all the rent you pay is converted into equity. In addition, consumers also have an opportunity to actually experience their home, plus the community facilities, neighbors, bills and so on, before they commit to buying.
However, there are potential pitfalls that consumers should be aware of, including the size of the premium they may be paying, service charges, any additional penalties and so on.
We have not considered this option at Arada for two reasons. The first is that the majority of the property we have released has been sold, and therefore we have no inventory. However, more importantly, we don’t believe that it is our role, as a developer, to act as a bank and effectively provide home financing in this way. Our focus lies on selling homes at a very competitive price, building them and delivering them to our buyers on time. We have excellent partnerships with lenders, including with Dubai Islamic Bank, which stand ready to provide home financing to our buyers at extremely competitive rates.
Direct financing schemes from developers to owners and investors
Ahmed Alkhoshaibi: There has certainly been an increase in developers offering generous financing schemes, some stretching to many years after the project has been completed. Naturally, this can be linked to oversupply in some sections of the market, which is forcing some companies to provide ever sweeter deals in order to meet sales targets. However, this in turn results in smaller margins for the developer, potentially making it tougher for them to complete the project.
Buyers will obviously find these payment plans attractive, but they should ensure that the developer with which they are investing has an excellent track record of delivery, and that their payments are being placed in escrow.
My own personal take on this is that developers are not banks and should not act like them. As yet, Arada has not offered post-handover plans, but we do provide guaranteed return on investment over a number of years at our student housing community, Nest, which has resulted in extremely strong sales for us since we launched in March.