A historic review and outlook since 2008 UAE Real Estate Report 2016 MID YEAR REVIEW AND OUTLOOK In the Middle East for over 30 Years asteco.com UAE Real Estate Report - H1 2016 Content 03 Editorial Note 04 UAE Price Comparison 05 Oxford Economics 07 Abu Dhabi Historic Review & Outlook 15 Dubai Historic Review & Outlook 22 Northern Emirates Historic Review & Outlook 26 Al Ain Historic Review & Outlook 2 © Asteco Property Management, 2016 UAE Real Estate Report - H1 2016 Editorial Note 2016 has so far been an interesting year for the UAE’s real estate sector. Whilst substantial declines were anticipated over the first half of the year, these appeared to be less pronounced than expected, especially in Dubai and the Northern Emirates as the delivery of supply slowed down considerably. At the same time, however, the effect of low oil prices continued to affect Abu Dhabi’s real estate market more so than Dubai. This is due to a heavily oil based economy in Abu Dhabi, whereas Dubai has a more diversified income base. Various measures to improve government revenues are being considered by Ministry of Finance such as the implementation of Value Added Tax (VAT) from 2018 onwards, as well as additional taxes on other products. Increases in water and electricity charges are also being considered. This would lead to a significant rise in the cost of living, which may become prohibitive for many residents. This would accentuate a trend already seen since the beginning of the year, whereby residents are becoming more budget conscious, downsizing to more affordable units and, in some cases, sending family members back to their home country. ABU DHABI & AL AIN Registration of over 8,000 new companies during the first six months of 2016, a 4.3% increase compared with the same Abu Dhabi and Al Ain have so far predominantly been affected period last year, is a clear indication that Dubai continues to John Stevens, BSc MRICS by job and budget cuts, which has led to an increase in be seen as a business hub for the region. This should enable a Managing Director /Director, Asset Services vacancies in the leasehold market, putting rental rates under progressive absorption of the new supply entering the market pressure. and a potential recovery of the office sector in the medium to long term. In the sales sector, this has negatively affected market sentiment, which could potentially lead to price reductions going forward. With the IMF forecasting Abu Dhabi’s GDP to grow at 1.7% in NORTHERN EMIRATES 2016 compared to 4.4% actual growth in 2015, further pressure Whilst the Northern Emirates tends to be left in the shadow of in the real estate market is expected during the second half of Dubai and Abu Dhabi, significant improvements and additions the year. in the construction industry have been witnessed over the last few years. These include new road connections, better quality housing supply, additional facilities, amenities, and retail, as DUBAI well as tourism elements, which are making the Northern With fears of an oversupply, developers have slowed down the Emirates more attractive to residents. delivery of new properties, which has led to a relative stability Sharjah, Ras Al Khaimah and Ajman have also set up several of rental rates over the first half of the year, although there has free trade zones that have been successful in attracting been a significant movement of tenants. businesses and residents, whereas Fujairah remains driven by If supply continues to be handed over at the same rate as tourism and the oil and gas sector. in the first half of the year, the market could witness some In the short to medium term the Northern Emirates will rental growth in select areas, especially as the IMF predicts an continue to be affected by the current economic conditions improved GDP growth of 3.7% this year compared to 3.6 % in and low oil prices. We expect significant growth in the longer 2015. term, as residents throughout the UAE look for more affordable Furthermore, investments allocated to airport, rail and tourism but good value for money residential options. infrastructure will promote further economic growth in 2016 and beyond. © Asteco Property Management, 2016 3 UAE Real Estate Report - H1 2016 UAE Comparison Price movement from 2008 to H1 2016 Rental Rate Evolution AVERAGE 2BR APARTMENT AVERAGE 4BR VILLA AVERAGE OFFICE RENTAL RATE MOVEMENT RENTAL RATE MOVEMENT RENTAL RATE MOVEMENT 250 500 400 200 400 300 pa 150 300 2 200 100 200 AED 000’s pa AED 000’s pa AED per ft 100 50 100 0 0 0 Dec Dec Dec Dec Dec Dec Dec Dec Jun Dec Dec Dec Dec Dec Dec Dec Dec Jun Dec Dec Dec Dec Dec Dec Dec Dec Jun 2008 2009 2010 2011 2012 2013 2014 2015 2016 2008 2009 2010 2011 2012 2013 2014 2015 2016 2008 2009 2010 2011 2012 2013 2014 2015 2016 Dubai Abu Dhabi Al Ain Ajman Fujairah Dubai Abu Dhabi Al Ain Dubai Abu Dhabi Al Ain Sharjah Sharjah New Ras Al Khaimah New Umm Al Quwain Sales Price Evolution AVERAGE APARTMENT AVERAGE VILLA AVERAGE OFFICE SALES PRICE MOVEMENT SALES PRICE MOVEMENT SALES PRICE MOVEMENT 2,500 2,000 2,500 2,000 2,000 1,500 2 2 2 1,500 1,500 1,000 1,000 1,000 AED per ft AED per ft AED per ft 500 500 500 0 0 0 Dec Dec Dec Dec Dec Dec Dec Dec Jun Dec Dec Dec Dec Dec Dec Dec Dec Jun Dec Dec Dec Dec Dec Dec Dec Dec Jun 2008 2009 2010 2011 2012 2013 2014 2015 2016 2008 2009 2010 2011 2012 2013 2014 2015 2016 2008 2009 2010 2011 2012 2013 2014 2015 2016 Dubai Abu Dhabi Dubai Abu Dhabi Dubai 4 © Asteco Property Management, 2016 UAE Real Estate Report - H1 2016 Oxford Economics GDP to grow by 2.3% this year …with non-oil growth slowing to 2.9% Medium-term outlook more encouraging The Abu Dhabi real estate sector is highly dependent on government We forecast non-oil GDP growth at 2.9% in 2016, with GDP overall Over 2017-19, non-oil growth is seen picking-up to 3.7% per year, slightly initiatives and therefore, if budget cuts continue as planned, vacancy rates at 2.3%. faster than in most of the neighbouring countries. are expected to increase leading to pressure on rental rates. At the same time, negative market sentiment is likely to lead to limited purchases from owner-occupiers in both the residential and commercial sectors. • Low oil prices tighten liquidity – slower private sector lending, deposit • Diversification strategy – although already well diversified, the UAE growth and stock market weakness all point to tighter financing aims to transition to a knowledge based economy by 2021, with the • Low oil prices could test OPEC policy – the OPEC strategy of conditions and decelerating investment. contribution of oil to GDP falling to 20% (currently around one-third). maintaining market share looks to be taking effect, with production declines outside of OPEC, notably of US shale producers, but also • Petrol price hike to hit consumer spending – petrol prices saw the • Business hub status and Expo 2020 will support investment – the in China. The recent weakening in the oil price could yet test OPEC’s fourth consecutive monthly price rise in July, albeit marginal. We see UAE ranks highly for its ease of doing business and openness commitment to this policy in H2, but we still expect the oil price to rising petrol prices contributing to average inflation of 2% in 2016, to investment and trade, which will support investment, as will average $43.6 pb in 2016. down from a subsidy-cut induced 4.1% last year. spending in advance of the Dubai World Expo in 2020. • Oil output limited by policy, capacity – production in the UAE • Pressure on the currency peg – we do not see a change in the peg to • Pressure on the currency peg – we do not see a change in the peg reached 2.91 mbpd in June, according to the IEA. We expect it to stay the US dollar in coming months due the potential for policy instability. to the US dollar in coming months due the potential for policy instability. close to 3.0 mbpd going forward, almost full capacity. • Measures to support the fiscal balance – the government has slowed • With oil prices remaining broadly stable in the medium term, outlays on non-essential projects, removed some energy subsidies • Greater support for SMEs - Recent steps towards this include the forecast at US$50pb in 2017 and US$52pb in 2018, the medium-term and a region-wide VAT is expected from 2018. Though further easing of rules on bank guarantees for SMEs from October 2016. outlook for growth remains soft. A combination of a gradual rise in measures are expected, such as an increase on tax on tobacco, But further support could be given by approving the bankruptcy interest rates in line with the US Fed, a strong dollar and the need alcohol and soft drinks, we see the bulk of the adjustment coming law, improving access to finance and broadening the credit bureau’s to finance the budget deficit will keep domestic liquidity conditions from spending restraint (modest by regional standards), gradually coverage. under pressure, while growth in neighbouring Gulf countries will also recovering oil prices, debt issuance and a running down of reserves, be modest. We expect GDP growth of 2.7% in 2017 and 3.3% in 2018 leading to a steady narrowing of the fiscal deficit from 8.5% of GDP in – still low by historical standards.