OBSERVER Market Overview After a strong start to 2020, with UAE residential prices and rents showing more stability over the year’s opening months, Contents Covid-19’s economic impact disrupted market performance from Q2 onwards. 4. Economic Overview The rental sector saw broad declines overall, with average After a sharp 2020 apartment rents in Dubai and Abu Dhabi falling by 12.4% contraction, the UAE’s and 4.8%, respectively. While villa rents also fell last year, economy is poised for growth the pace of decline eased over H2, supported by a rise in post-lockdown demand for properties with outside space. Annually, Dubai and Abu Dhabi villa rents recorded declines 6. of 5.3% and 3.6%, respectively. Dubai Prices and rents saw broad Sales prices also faced downward pressure, although declines, although agency performance increasingly varied by property type and activity gained pace over H2 location over 2020. Average apartment prices ended the year 9.5% and 3.8% lower in Dubai and Abu Dhabi, respectively. In line with the rental sector, villa prices saw a more moderate 16. fall, declining by 3.6% in Dubai and 3.4% in Abu Dhabi. Abu Dhabi 2020 saw comparatively 2020 witnessed the announcement of several new policy modest declines across initiatives likely to support the UAE’s residential sector, prices and rents, with sales including Dubai Land Department’s ‘fractional title deed’ improving over H2 scheme, Dubai’s new remote working visa and the launch of a new retirement programme. These initiatives should serve to 24. bolster the market, and create new developer opportunities, Northern Emirates moving forward. Key projects made headway, despite an overall challenging While the UAE’s residential sector will likely see greater 2020 stability over 2021, with a broad economic recovery set to buoy market performance, we forecast modest declines in average sales prices and rents overall. Price trends will not 26. be uniform though, and we expect demand for completed UAE Outlook villas, across more-established residential communities, to Residential prices set to see continue over the coming year. greater stability over 2021 OBSERVER - UAE 2020 Review & 2021 Outlook 2 2020Q4 2020Review Economic Overview UAE Key Economic Indicators (2019 to 2022F) Non-oil private sector expected to 15 rebound over 2021 10 5 Expo 2020 to drive tourist arrivals and 0 bolster market sentiment -5 Annual Change (%) -10 -15 UAE to vaccinate half the total 2019 2020E 2021F 2022F population by close of Q1 Gross Domestic Product (GDP) Private Consumption Inflation (CPI) Fiscal Balance (% of GDP) Source: Focus Economics, January 2021 AN ECONOMY POISED FOR GROWTH Key support Expo 2020 to drive tourist measures over 2020 arrivals, boost economic growth 1. Expo 2020, now scheduled to run from October 2021 through The UAE faced a challenging 2020, with the disruption caused IHS Markit Purchasing Managers’ Index (PMI) climbed to 51.2 5% increase in loan-to-value ratios on mortgages for to March 2022, looks set to support a significant increase in by Covid-19, coupled with lower oil prices, hampering economic in December, up from November’s 49.5, marking a 16-month first-time homebuyers, reducing the required down tourist arrivals later this year. While there is still uncertainty performance. The economy is estimated to have contracted by high. The UAE’s hospitality sector also enjoyed clear payment from 25% to 20% across the UAE surrounding travel restrictions internationally, organisers over 6% last year, with hospitality-related sectors especially improvements over Q4, bolstered by growing international forecast around 25 million tourists to visit Expo 2020, affected by social distancing measures and international travel arrivals and a rise in domestic ‘staycations’. providing a welcome boost to Dubai, and the wider UAE’s, restrictions introduced over Q2. 2. hospitality sector after a year of unprecedented challenges. The UAE’s central bank expects the economy to expand by Revised limit on bank real estate exposure, which can The overall economic impact of Covid-19 was, however, eased 2.5% over 2021, driven by increased fiscal spending, a rise in be increased to 30% of a bank's loan portfolio (subject Aside from an economic boost during the Expo itself, the by the proactive policy response from UAE authorities, with the credit availability and employment, in addition to relative real to holding more capital), up from 20% previously Expo’s legacy project, in the form of District 2020, is set to central bank’s Targeted Economic Support Scheme (TESS), first estate market stability. provide longer-term economic benefits. Over 80% of the introduced in March and extended through to June 2021, Expo’s built environment is due to be retained, with the area providing vital private sector support. The speed of the UAE’s vaccination programme, which is set to 3. ultimately set to comprise a community spanning around see half the population vaccinated by the end of March 2021, The UAE Central Bank delivered a comprehensive AED four hectares. The resultant development activity, coupled Economic activity started to gain pace over 2020’s final will also play a key role in supporting private sector growth this 100 billion Targeted Economic Support Scheme to with the continued expansion of the area’s Dubai Exhibition months, building on the modest recovery noted over Q3. The year. assist both individuals and the private sector over 2020 Centre (DEC), is set to bolster GDP growth medium-term. OBSERVER - UAE 2020 Review & 2021 Outlook 4 OBSERVER - UAE 2020 Review & 2021 Outlook 5 2020Q4 2020Review Dubai Dubai Residential Transactions by Month (2020) 5,000 4,000 3,000 2,000 No of Units 1,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Sales - O-plan Sales - Completed Source: REIDIN & Chestertons Research Despite the annual decline, sales volumes showed signs We expect new off-plan sales launches to be limited in early of recovering over the second half of 2020, and overall 2021, with developers broadly reassessing project plans in the performance varied by property type and location. The total wake of last year’s challenges. We predict, however, that new value of completed property sales, for example, rose by almost launch activity will pick as the year progresses, with developers TRANSACTIONS 14% over 2020, with completed units accounting for almost likely to take advantage of Expo 2020 to showcase new 70% of total transaction value, and around 60% of unit sales projects. GAINED PACE OVER H2 volume, over the second half of last year. 2020, SPURRED BY COMPLETED With residential prices ever-more stable, HOT TOPIC PROPERTY SALES has the market bottomed out? The final quarter of 2020 saw the pace of price declines across Dubai residential property ease, with average prices within several more-established villa communities showing minor uplifts. The residential sector’s performance also looks set to be supported this After a strong start to 2020, the economic impact of Covid-19, interest in completed villa units over the final months of last year by improvements in the wider economy, with a recovery across the non-oil private sector due to increase employment and, in coupled with continued unit handovers, affected Dubai year. The latter lead to a slight uplift in average villa prices, turn, household incomes. The latter should also serve to support rents, which declined at a sharper rate than prices over 2020, and residential sector performance from Q2 onwards. Dubai across several more-established communities, over Q4. will be crucial in underpinning residential investment demand. apartment prices fell by 9.5% over 2020, with rents declining by an average of 12.4%. Villa prices recorded a more moderate The total value of Dubai residential sales declined by 13.8% While we expect improvements in the overall economy to translate to greater stability in residential performance, the sector will decline of 3.6%, with rents seeing an annual 5.3% fall. over 2020, standing at AED 55.46 billion, compared to the likely see a modest decline in market-wide average prices over 2021, with ongoing unit completions set to place downward pressure AED 64.34 billion achieved over 2019. The annual drop largely on values. Performance will vary between property type and community though, and end-user demand will likely continue to buoy The villa sector’s relative strength was primarily due to increased reflects the sharp fall in agency activity noted over Q2, where villa prices across popular locations this year. demand over the second half of 2020, with tenants seeking total sales value fell by over 36% compared to Q2 2019. more open space following lockdown, along with strong sales OBSERVER - UAE 2020 Review & 2021 Outlook 6 OBSERVER - UAE 2020 Review & 2021 Outlook 7 5% 5% 11% 2020Q4 2020Review 2020 Transacations Dashboard 47% 32% Apartment Sales by Unit Type (2020) Villa Sales by Unit Type (2020) 5% 10% 17% Apartment prices continued to fall, although the rate of 25% decline eased over Q4 24% 49% The largest annual price declines in the apartment segment Agency activity gained pace over Q4, with average apartment 29% were witnessed in Discovery Gardens, with prices falling by prices recording declines of just 1.2% from Q3, compared to an 13.5% annually. Average prices reached AED 498 per sq ft, average 3.4% drop the previous quarter, with a significant 41% down from AED 576 in Q4 2019. Dubai Sports City and Motor minority of locations seeing declines of below 1% quarter-on- City also saw comparatively sharp declines year-on-year (y-o-y), quarter (q-o-q). falling by 13.3% and 12.8%, respectively. Prices averaged AED Studio 1BR 2BR 3BR (and above) 2BR (and below) 3BR 4BR 5BR (and above) 600 per sq ft in Dubai Sports City, down from AED 692 in Q4 Locations witnessing more moderate quarterly declines 2019, with prices in Motor City falling to AED 510 per sq ft, included Downtown and The Views, which both saw falls of just down from AED 585.