Out of the shadow: The UAE real estate sector displays signs of recovery

The global outbreak of the COVID-19 virus has had a lasting and far-reaching paralyzing impact on economies across the world due to movement restrictions that have changed the way we live, work, learn and socialize.

In the UAE, the economy has experienced uncertainty within its main drivers in the non-oil industry, with the travel, hospitality, retail, and real estate sectors having been hit particularly hard. Dubai’s Expo 2020 has been pushed to 1 October 2021, yet despite the delay, is anticipated to boost confidence and regain investors’ trust in the coming years, further leading to a rise in economic growth supported by a growth in the real estate sector.

In light of the pandemic, the Central Bank of the UAE (CBUAE) had rolled out the following till date, in support of the UAE economy and financial system.

Major real estate groups had already announced relief packages in 2020 across their business segments that included rent reliefs, deferred payment plans, waivers of administrative charges to support their customers and business partners, as detailed below.

Major public and private developers are currently focused on ensuring a faster execution of the ongoing projects to deliver the best quality product to investors. Yet not all developers have the financial strength to face cash flow issues varying from managing the working cash flow to repayment on bank borrowings to settlement to contractors.

With Expo 2020 pushed back, many real estate groups are looking at their current operating model by taking corrective actions to overcome the short-term challenges, implementing the technology-driven business model, and focusing on sustainable operations and long-term opportunities.

Despite uncertainties and challenges faced by the real estate sector, it is set to transition into a recovery phase and below are some of the green shoots indicating a recovery.

1. New visa initiatives

The UAE, and Dubai specifically, is a melting pot of different cultures with expatriates forming an estimated 89 percent1 of the population, which is a key attribute to determining the property demand in the country. The government has rolled out various game-changing visa initiatives that have created a positive impact on the demand for real estate, such as:

a. Ten year-residency for expatriates;

b. Five-year renewable retirement visas to retired residents and eligibility of foreign students to sponsor their families meeting certain specific conditions; and

c. New self-sponsored remote work visa enabling employees from all over the world to live in, and work remotely from, the UAE even if their companies are based in another country.

2. Nationality for selected expatriates

Recently, the UAE Government has approved amendments to the citizenship law, allowing investors, professionals, special talents, and their families to acquire Emirati nationality under certain conditions. This historic decision aims to boost the country’s economy in the long run, reinforcing the leadership’s vision to grow and attract talent. This should further advance the increase in demand for real estate.

3. Expo 2020

The pandemic has halted all major events across the globe, but the focus of attention is on the upcoming Expo 2020. The Expo theme is “Connecting Minds, Creating the Future”, which recognizes that generating sustainable solutions to global problems demands collaboration across cultures and regions while the subthemes of opportunity, mobility, and sustainability define the principal drivers of progress. Expo 2020 will create many opportunities for the hospitality industry as it is expected to attract more than 25 million visitors² from
across the globe and will add impetus to the growth of the real estate sector. Over the last two years, construction has continued on the Expo 2020 site that includes various government-led projects leading to anticipation for investors to invest in the real estate sector.

4. Virtual real estate events

Despite large-scale exhibitions being suspended, all the major organizers in the field of real estate had to be agile and learned to innovate. One such initiative is Cityscape Intelligence, an online portal that allows investors to get an overall knowledge of the real estate sector products. For 2021, Cityscape has introduced a hybrid model i.e. physical event, live, and in-person, which is planned to take place in early November for three days at the Dubai Exhibition Centre (DEC) within the Dubai Expo 2020 site. This event will enable investors to identify investments suiting their interest and business needs, strengthening the real estate sector. 

5. Vaccine roll out

Vaccination is the only ray of hope to fight the pandemic. The UAE has effectively rolled out a vaccination campaign with a clear vision to vaccinate the population in 2021. It has already achieved the target of vaccinating more than half of its population by March 2021. The leadership’s vision with world-class amenities such as world-class airport, logistics, and storage facilities have enabled the UAE to position itself as an example across the globe whereas other countries are struggling with vaccination effects. The efforts of the government authorities are already showing positive results as there has been a reduction in the number of daily infections and will in turn uplift the real estate sector as people go back to normal life. 

6. Changes in existing company laws

To facilitate direct foreign ownership and investment in the UAE just before Expo 2020, the Government has removed the long-standing requirement for UAE companies to have one or more Emirati shareholders holding at least 51 percent of the issued share capital of the company. This policy change will boost the economy and growth by attracting foreign investors.

7. Attractive offerings by lenders

Lenders in the UAE have various offerings to turn renters to become homeowners such as increasing the loan to value ratio by reducing the mortgage gap for first-time investors, extremely competitive interest rates on mortgages, and the waiver of certain administrative fees.

8. Other initiatives

The UAE government is also actively identifying several other measures to create a positive and lasting impact on the real estate market. Recent initiatives include:

a. Approval by the executive council of the new ‘Dubai Building Code’ that outlines a set of construction rules promoting sustainable development and innovation in building design. It also aims to reduce construction costs by streamlining building rules and requirements and to hasten the completion of the design phase of construction projects to the highest international standards.

b. Reduction in fuel surcharge for electricity and water announced by the Dubai Supreme Council of Energy to all district cooling companies supporting property owners.

c. A new law governing the rental agreements in Dubai is expected to be issued soon which would fix rents for three years. This change in law will assist the landlords to achieve stable tenants and it will help them to avoid paying an annual increase in the rental amount.

With all these indicators, the recovery of the real estate sector across the UAE will be dependent on the confidence of potential investors. Data for the UAE in Q1 2021, particularly the Dubai real estate market, already shows an upward trend compared to Q1 2020 i.e. pre-Covid and Q4 2020.³

The chart below shows transactional data and value over Q1 2021 and Q4 2020. The overall number of transactions has increased by 6 percent quarter-on-quarter with a corresponding increase in the transactional value. Offers from lenders such as reduction in interest rate, coupled with lower, or waiver of, mortgage fees and increase in loan-to-value for first-time buyers by 5 percent for Emirati and expatriates has resulted in an increased number of mortgage transactions. Further, there has been a hike in the secondary market by 9 percent and the month of February 2021 now holds the record for most secondary property sales transactions in a single month over the past three years.⁴ 

As shown in the chart above, the overall number of transactions in Q1 2021 has increased by 16 percent compared with Q1 2020, with a corresponding increase in the transactional value by 17 percent. The trend in the second half of 2020 is of the secondary market transacting higher compared to the primary (off-plan) market. Mortgage transactions have also seen a remarkable increase due to factors discussed earlier.⁵

The real estate sector also includes hotel assets that are owned by corporates and family groups and that contribute significantly to investment in this sector. With the upcoming supply, the sector is facing pressure on the rates and occupancy of hotels but is marching towards a slow and steady recovery. Despite the challenges faced by the hospitality sector, asset owners of the finest beachfront properties have seen an increase in the average daily room rate (ADR) despite a mixed trend of occupancy in Q1 2021 compared with Q1 2020. The graphs on the right depict the performance of selected premium beachfront properties in Dubai in terms of ADR and occupancy.⁶