Complex Made Simple

GCC real estate markets 2019 need support to fare better

By: S&P Global Ratings

We expect the GCC real estate markets in 2019 to fare no better than in 2018, wrought with political uncertainties, supply-demand imbalances (notably in the Dubai and Doha residential market), economic slowdown, and lower population growth. On the flip side, we expect higher oil prices to reduce fiscal pressures and some of the GCC governments have announced measures to support the real estate sector.

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For example, Saudi Arabia is launching various affordable housing programs, real estate public-private-partnerships, and mega projects; the U.A.E has announced reduction in government fees (to 2.5% of the annual rent of commercial establishments from 5%) and relaxation of regulations around foreign ownership in businesses located outside of free zones; and Abu Dhabi has announced AED 50 billion ($13.6 billion) economic stimulus for business owners, real estate sector, and tourism among other areas over the next three years.

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We expect GCC office, retail and residential rentals to remain under pressure over the next 12-18 months because of weak market sentiment, increased supply in most markets and segments and a strong dollar (GCC currencies are pegged to the U.S. dollar, except Kuwait which is pegged to a basket of foreign currencies, making real estate more expensive in other currencies, such as pound sterling and euro).

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In 2019, we expect to see lower average daily rates (ADRs) for hotels as supply continues to increase faster than demand, notably in Dubai. We also anticipate pressure on retailers and retail real estate in the short term, with the introduction of VAT, growth in online shopping, and tourists becoming more cost sensitive, with Dubai’s Expo 2020 providing a boost to the sector over the medium term.