UAE Property Set for a Modest Recovery

I am grateful to Hamptons International- Property Management Company for this Guest Editorial which provides an honest update on the changing property scene in the UAE.

Dubai and Abu Dhabi real estate have seen a substantial increase in property value, putting a decent brake in their fluctuating prices by close of 2009’s second quarter in many sectors. This has encouraged value investors to restart activities in the market who had been waiting for more than eight months to act on the trend. An extra incentive for the rise in investments is the fact that many projects in both cities in the UAE are either being finalised or in the process of, which cancels considerable risks investors were previously tackling while making investment decisions.

Even so, the recovery of the world business climate still figures largely in the volume of transactions in the area, especially when it comes to major banks and other financial institutions’ ‘relaxation’ over lending criteria.

With a 20 per cent reduction in the number of transactions throughout Q2 2009 (in relation to Q1 of the same year), the accepted explanation is that, as property prices went on freefall, more and more owners who were at first considering exiting the market decided to wait for it to become stable and convalesce once again. On the other hand, potential buyers were waiting for the prices to overturn. Dubai Land Department figures indicate that Indian and Pakistani nationals shaped a large majority of these property buyers during the second quarter of 2009. The top 5 buyers also include UK ex-pats, UAE and Iranian nationals, with the estimate measure used being the volume of property transactions.

As previously mentioned, property market prospects are firmly connected to the state of the general economy. At present, the outlook for the UAE macro-economy is still ambiguous mainly due to a series of external factors. For instance, oil prices started to stabilize between US$60 and $80 a barrel – a secure range for the UAE economy.

Consequently, a constant cash flow into the government treasury will guarantee that most if not all infrastructure projects already underway will be able to be accomplished. The diligence of the UAE government is ensuring the country will remain in a competitive position in terms of business in the region. It has, for instance, abolished minimum capital requirement (AED 150,000) for establishing LLC (limited liability) companies in the whole country – a heartening sign surely able to catalyse the activity of entrepreneurs wanting to set up SMEs (Small and Medium Enterprises) in the region.

With regards to employment, the worst seems to have passed in the UAE. Most employers have had to cut on their workforce with this downturn but the return of job security is a critical factor in determining the decision making of potential owner-occupiers.

The next few months is a period expected to be consolidative for the property market in the UAE. The value of houses for sale in the area should not decline any further during the next quarter, as per predictions. Transaction volumes for properties also should not improve as summer and Ramadan are traditionally quiet periods for the property market in the UAE. Both property values and the volume of their transactions are likely to go up during the last quarter of 2009 for a number of reasons such as a boost in job security, the comeback of value investors and the easing of mortgage lending criteria.

Related
Abu Dhabi Property Market News, Experiencing the Emirates, 29 September 2009.

Dr Geoff Pound

Geoff can be contacted by email at geoffpound(at)gmail.com on Facebook and Twitter.

Image: This villa has largesse and is typical of the spaciousness of many homes in the Emirates.