UAE real estate sector on the road to recovery

UAE real estate sector on the road to recovery

As global economy starts showing signs of a revival, a gradual yet corresponding change is noted in the UAE real estate sector. According to the estimates of the Gowealthy Research Team, the demand for off-plan properties in the UAE, especially Dubai, virtually ended with the exit of speculators. Foreign/ regional investor interest is currently geared towards ready-to-move-in properties or projects that are at least 50 - 60 per cent complete.

Contrary to reports that a number of developers had defaulted on payments to contractors owing to a shortage of liquidity, Dubai has already distributed more than US$ 5 billion out of its US$ 10 billion bond to the emirate's real estate firms, mostly state-affiliated organizations. As cash inflow to the construction sector resumes, building activity is expected to gain momentum leading to a deluge of available properties in the immediate future. According to a recent industry report, the UAE construction market is estimated to reach US$ 64 billion by 2010 - a considerable rise from the market's value at US$ 46 billion in 2008.

Dwindling market demand, an oversupply of units coupled with ‘distress sales' by owners in a bid to raise much-needed liquidity for loan/ mortgage repayments are affecting sale prices adversely. According to research by Colliers home prices in Dubai have declined by 40 - 42 per cent since Q4 2008. The study reveals Abu Dhabi has fared better with residential properties that were launched in Q2 of 2008 being devalued by 20 per cent. In stark contrast to 2008, sale transactions in Dubai and Abu Dhabi are now driven by professional investors and not speculators.

In such a scenario, the UAE becomes ideal for long-term property investments. At present, quality accommodation or workspace could be had at extremely moderate rates; the scales are tipped heavily in favor of serious investors on the lookout for appreciable bargains. The UAE is now viewed as a good investment proposition with prospects for steady returns. A survey held for private client managers by Citi has found that High Net Worth Individuals (HNWI) are now more than willing to consider the asset class for their investment portfolios, despite the global financial crunch. Just 7 per cent of those surveyed were very concerned about the fall in property values. Real estate accounts on average for 30 per cent of HNWIs' asset allocations. This spells good news for the UAE real estate market, on the lookout for committed, long-term investments.

But the question doing the rounds is whether the UAE's relatively young realty sector is mature and resilient enough to meet long-term investor demands and expectations. The frank discussion initiated by the architect of the UAE economic miracle, His Highness Sheikh Mohammad bin Rashid Al Maktoum on his website regarding the various ongoing projects has restored business confidence and ended speculation about the future of the UAE economy. The oil-rich Abu Dhabi has been described as a ‘world winning city' to watch out for in the next 20 years by Jones Lang LaSalle with tremendous potential for tourism, business development and living standards. 

The government of Dubai recently amended Article No. 13 which will provide new provisions for the cancellation of contracts, thereby guaranteeing additional protection for property developers and buyers. Also, the department has also started offering public property auction licences to private firms that allows creditor/ mortgagee to auction the mortgaged property in case the debtor fails to pay the mortgage within stipulated period.

Meanwhile the Ajman Real estate Regulatory Authority (ARRA) has given developers time till May 1 to register with the department so that the real estate authority can determine the future of projects in the UAE emirate. The current correction that the market is experiencing is touted to be beneficial to the UAE. It provides planners of the federal economy sufficient space and time to plan for a more sustainable pace of competitively priced development and enable legal reform and development initiatives to take hold.

Property Factbox

What does amendment of Article No. 13 bode for property buyers in Dubai?

According to the amendment, before cancelling any purchase contract a developer must notify the Land Department if a buyer is in default of a contract for sale. The Land Department will then give the purchaser a notice period providing a 30-day period within which the purchaser must fulfill its obligations. In case of a buyer defaults on the purchase agreement/ contract and does not fulfill his/ her obligations at the end of the 30-day notice period, the following rules apply: