The Property Report
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cluttons.me THE PROPERTY REPORT UNITED ARAB EMIRATES | 2017 THE PROPERTY REPORT | THE PROPERTY REPORT | ECONOMY WEAKER ECONOMIC GROWTH BECOMES THE NEW NORMAL CONTENTS 3 ECONOMY As we approach the third anniversary of UAE, with the latest 2017 prediction growth has hampered local economic the spectacular collapse in oil prices, they in early July standing at a mere 1.3%; conditions in the emirate. This is also 6 ABU DHABI PROPERTY MARKET remain 50% to 60% below their USD 100 down from a January estimate of 3.3%. reflected in the sluggish Emirates NBD plus per barrel levels last seen in mid 2014. Emirates NBD, Dubai’s largest lender, Dubai Economy Tracker Index, which shows 14 DUBAI PROPERTY MARKET The implications for the UAE have been meanwhile has forecast GDP growth of growth having accelerated in June, with varied, with emirates such as Abu Dhabi just 2% nationally this year, down from new business orders continuing to rise for 24 SHARJAH PROPERTY MARKET and Sharjah that rely on oil revenues to an earlier estimate of 3.4%. the 16th consecutive month. However, spur economic growth, seeing growth rates job creation rates have eased in the all 27 CONCLUDING THOUGHTS AND UAE PROPERTY MARKET FORECASTS trimmed as the fall out lingers, curtailing OIL PRICE WEAKNESS STILL important tourism, travel and construction expansion across almost all sectors. For WEIGHING ON GROWTH sectors, while business confidence has Dubai, where oil income forms a fraction While the weak oil sector continues to retreated to a 12 month low. The of total GDP growth, the impact, while act as a drag on overall expansion, the increasingly stagnant conditions are delayed, has also been marked, primarily non-oil sector is expected to help drive reflective of the faltering health of the due to the slowing growth in surrounding growth through the second half of 2017. global economy. Gulf economies, rather than any In fact, following the weakest monthly underlying weakness in Dubai itself. performance in six months at the end of Elsewhere, the Bank of America Merrill May, the Emirates NBD UAE Purchasing Lynch (BoA) announced that GDP growth Conflicts elsewhere in the Middle East, Managers’ Index showed a turn around in in Abu Dhabi slowed sharply to 2.8% in the Qatari diplomatic crisis, the messy the rate of growth in the non oil sector. 2016, from 5% a year earlier. Abu Dhabi’s Brexit negotiations now unfolding and The index rose from 54.3 in May to 55.8 Department of Economic Development the unpredictable nature of the Trump in June, positioning it above the long has however forecast a rebound in economic presidency in the United States are all run average of 54.5; a figure above 50 activity, which will translate into growth weighing on global growth and continue indicates expansion. While the growth in of between 3.5% and 3.7% this year. to limit the UAE economy’s ability to the number of new orders was reported The BoA has projected that ongoing fiscal register double digit GDP growth. to have risen, the rate of job creation consolidation as a result of the oil price ebbed to an eight month low. collapse will drive the budget surplus in With the uncertain global economic the emirate up to 10%, with spending climate expected to persist, Oxford 2018 and 2019 are expected to see likely to slip by 6.2% by the end of 2017. Economics has forecast that UAE GDP an increase in the rate of economic growth by the end of this year will be expansion, underpinned by higher Meanwhile, in Sharjah, Standard & Poor’s lower than 2016, rising by 1.7%; the spending levels, particularly in Dubai, (S&P) expects GDP growth to average slowest pace of expansion since 2010. in the lead up to the 2020 World Expo, 2.4% per annum between 2017 and 2020. Conditions are being exacerbated by the with 3.3% and 3.6% growth forecast, S&P earlier announced that 3.5% growth low oil price environment which will drive respectively (Oxford Economics). was registered in 2015, which Moody’s further consolidation in the sector. This Investor Services believes slowed to just forecast is far more conservative than the On an emirate level, GDP expansion in 0.6% last year as weak oil prices took UAE Ministry of Economy’s own forecast Dubai slowed to 2.7% last year, down their toll on overall investment activity of 3% growth in 2017. The International from 4.5% in 2015, according to the in the country’s third largest emirate. Monetary Fund has however made two Government of Dubai. 2017 is forecast to revisions to its growth forecast for the register growth of 3.1%. Slower global 2 | cluttons.me cluttons.me | 3 THE PROPERTY REPORT | ECONOMY THE PROPERTY REPORT | ECONOMY Performance of oil prices 140 120 100 80 VAT LOOMS 60 USD/barrel As we have mentioned previously, the 40 GCC Governments’ plan to introduce a formal tax regime, as part of smarter fiscal 20 policies designed to reduce the reliance on hydrocarbon incomes, now looms. We view 0 this as a tremendously positive step in the right direction as the Governments of the Jul 2008 Jul 2009 Jul 2010 Jul 2011 Jul 2012 Jul 2013 Jul 2014 Jul 2015 Jul 2016 Jul 2017 Jul Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2017 Jan region cement much needed alternative Jun 2016 Jun revenue streams. Source: OPEC The formal Value Added Tax (VAT) regime begins on January 1, 2018, with the initial GDP growth rate of VAT set at 5%. In recent months, some GCC member states have already implemented varying degrees of VAT on some goods. Saudi Arabia has for instance implemented a 50% tax on soft drinks, in addition to a 100% tax on energy drinks and tobacco. In the UAE, VAT regulations continue to be drip fed to the market, with the Ministry of Finance announcing in early July that ABU DHABI DUBAI SHARJAH companies with annual revenues of over 2016: 2.8% 2016: 2.7% 2016: 0.6% AED 375,000 would be liable for VAT. 2017: 3.7% 2017: 3.1% 2017: 2.4% Meanwhile, it has also been clarified that no special arrangements will be made for small and medium sized businesses. Source: Oxford Economics, Abu Dhabi Department of Economic Development, Government of Dubai, Bank of America Merrill Lynch, Standard & Poor’s When it comes to property, commercial leases will be charged a 5% VAT, while residential rental property is expected to UAE GDP growth forecast be exempt from any taxation. 12 The new VAT regime is clearly expected to 10 fuel inflation, squeezing household budgets further and stalling economic expansion. 8 It is likely to take up to 12 months for the 6 markets to absorb the change, before we see signs of a resumption in growth. 4 2 0 Annual change (%) change Annual -2 -4 -6 -8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 f 2018 f 2019 f 2020 f United Arab Emirates World Source: Oxford Economics, IMF 4 | cluttons.me cluttons.me | 5 THE PROPERTY REPORT | ABU DHABI THE PROPERTY REPORT | ABU DHABI ABU DHABI Etihad Towers 6 | cluttons.me cluttons.me | 7 THE PROPERTY REPORT | ABU DHABI THE PROPERTY REPORT | ABU DHABI RESIDENTIAL MARKET RESIDENTIAL VALUES REMAIN Apartments posted larger corrections committing to luxury home purchases, of which plays a key role in creating For would be buyers and investors, while remaining in rented accommodation, UNDER PRESSURE in the six months to the end of June of which is where we continue to record the fresh demand for both residential and residential property priced at between possibly for longer than initially planned. The first six months of 2017 have seen -1.4%, compared to just -0.3% for villas. most severe declines. In fact, sea view commercial property in the emirate. The AED 800 psf to AED 1,000 psf remains The overall impact of this apparent a continued lacklustre performance of On a submarket level, the three weakest villas on Saadiyat Island emerged as the impact on the economy is best illustrated a particular sweet spot, developers are strengthening in demand for rented residential values in Abu Dhabi’s main performers all came from the luxury end weakest performers in the market, with by the contribution of oil to overall GDP. wary of affordability challenges. We have property has been undermined by rising residential investment areas, with values of the property spectrum, with high end values declining by 22.2% over the last According to the Statistics Centre Abu already seen TDIC move to launch the supply levels of rental property. overall dropping by 0.9%. This of course apartments on Al Raha Beach (-3.3%) and two years. Over the past few months, Dhabi, overall GDP output slipped from first phase of Saadiyat Lagoons, with does mask a far more complex picture. Saadiyat Island (-3.3%) being joined by Al there does however appear to be some AED 910 billion in 2012, to AED 730 two-bedroom homes priced at AED This has been particularly evident on The seemingly slower rate of declines has Reef Villas (-2.9%). stability returning here, with values billion at the end of 2016. At the same 2.4 million (or AED 1,123 psf), making Reem Island, where a sudden surge in improved the annual change to -6.3% firming at about AED 1,750 psf.