After two years of spectacular house price rises, Dubai’s housing market continues to grow stronger, while its neighboring Abu Dhabi, UAE´s capital, is also following suit.
In Dubai, the regional financial, transport and logistics hub, the all-residential property price index (RPPI) skyrocketed by a record 24.9% (23.16% in real terms) during the year to November 2013, according to Reidin.com.
Likewise, the Abu Dhabi all-residential property price index rose by 19.7% during the year to end-November 2013.
Dubai’s RPPI is calculated monthly and covers 7 cities, 8 main districts and 4 major projects. Abu Dhabi’s RPPI is also calculated monthly, and covers 7 cities and 4 main districts.
This was supported by figures released by Jones Lang LaSalle MENA which showed that asking prices for apartments in Dubai rose by 20% y-o-y in Q3 2013 while the asking prices for villas increased by 14% over the same period. Residential asking prices in Investment Areas in Abu Dhabi increased by 18.6% during the year to end-Q3 2013, to an average of AED12,100 (US$3,295) per square meter (sq. m.). The average asking price for apartments in Abu Dhabi increased to AED14,200 (US$3,867) per sq. m. in Q3 2013, while villas increased to AED10,500 (US$2,860) per sq. m.
Residential construction activity remains vibrant. In the third quarter of 2013, there were about 3,400 new residential units added in Dubai, and around 2,700 units in Abu Dhabi, according to Jones Lang LaSalle MENA. The additional Dubai units are mainly in The Nakheel villas compound in Jumeirah Park, The Villa-stage 3 in Dubailand, Burjside Boulevard by DAMAC in Downtown Dubai, and Suburbia by DAMAC in Downtown Jebel Ali, among others. On the other hand, most of the newly delivered housing units in Abu Dhabi are located in Rawdhat and Danet on Airport Road, Al Reef Downtown, Mangrove Place on Reem Island, Al Falah and the Khor Al Raha apartments at Al Raha Beach.
In Dubai, the total residential stock has already reached about 364,000 units while in Abu Dhabi, the residential stock totalled around 213,000 in Q3 2013. From end-2013 to 2015, about 41,000 new housing units are expected to enter the Abu Dhabi market and around 45,000 new housing units are projected to enter the Dubai market.
Property demand continues to surge. In 2013, the total number of real estate transactions in Dubai jumped by 52% to 63,652 from a year earlier, according to Dubai Land Department (DLD). Likewise, the total amount of transactions in the emirate reached more than AED236 billion (US$64.3 billion) in 2013, up by 53% from AED154 billion (US$41.9 billion) in the previous year.
"The transaction figures for 2013 reveal a high level of optimism currently prevailing in the real estate market. These can be attributed to the new regulations and procedures issued during the past year, which have contributed to the strengthening of trust and confidence between the various categories of investor,” said Sultan Butti Bin Merjen, Director General of DLD. “We are anticipating a further rise in the growth index this year, boosted by Dubai´s winning bid to host World Expo 2020," he added.
To prevent another property bubble from emerging, the central bank recently issued circulars to banks introducing mortgage caps. In addition, Dubai Land Department recently doubled property registration fees from 2% to 4%. The new rules are expected to dampen property demand.
UAE FEDERAL MORTGAGE CAPS (MAXIMUM LOAN-TO-VALUE-RATIO)
|Second home or investment property||Off-plan purchase|
|Property valued under
AED5 million (US$1.36 million)
|Property valued over
AED5 million (US$1.36 million)
|Property valued under
AED5 million (US$1.36 million)
|Property valued over
AED5 million (US$1.36 million)
|Source: UAE Central Bank, Cluttons|
In contrast to Dubai’s measures to curb house price growth, Abu Dhabi continues to boost measures to attract long-term foreign property investors, in an effort to buoy its local property market. In 2012, the government compelled public sector employees living outside Abu Dhabi to relocate within the emirate’s borders. Then in November 2013, the government cancelled a 5% cap on annual rent increases, to boost demand. In addition, the government recently introduced a new regulation allowing foreigners to own property in Abu Dhabi on a freehold basis in designated investment zones. Previously, foreign investors in the emirate were generally limited to leasehold arrangements with 99-year leases.
"This marks the launch of a very important phase in the development of the real estate market in Abu Dhabi, a phase which presents us with new opportunities for growth and development offered by Abu Dhabi´s economy," said Abubaker Seddiq al Khoori, chairman of Aldar.
Following the passage of the long-awaited foreign property ownership law in March 2006, a deluge of foreign money boosted Dubai’s ambitions. Europeans, including Russians, accounted for 20% of the buyers of all property categories. GCC, Arab nationals and UAE nationals make up 28%, Asians 40%, and Iranians 12%, according to figures from Global Realty Partners. The overall foreign ownership index of property kept by Colliers International soared 116% from Q1 2007 to Q3 2008.
From 2002 to 2008, Dubai’s property prices almost quadrupled, and large-scale developments turned Dubai into one of the fastest growing cities in the world. Some of the biggest projects include Jumeirah Garden City (estimated cost: US$95 billion), Dubailand (US$64 billion), The Lagoons (US$25 billion), Palm Jumeirah (US$14 billion), and The World (US$14 billion).
Then the global credit crunch hit. Amlak and Tamweel, the UAE’s two largest home finance companies, stopped offering new loans. The two mortgage lenders accounted for more than 50% of all mortgages in the country.
Foreign investors suddenly disappeared at the end of 2008, as the global financial crisis hit the emirates. This caused transaction volumes to plummet. The overall foreign ownership index was 50% down by Q4 2010, from its peak in Q3 2008.
Almost half of all the construction projects in the UAE, worth around AED1.1 trillion (US$582 billion), have been either put on hold or cancelled, in response to falling demand and deteriorating market conditions. The table lists some of the megaprojects being delayed or cancelled:
|Jumeirah Gardens City||Satwa district, Dubai||Meraas Development||95 billion|
|Mohamed Bin Rashed Gardens||Between Al Khail Road
and Emirates Road, Dubai
|Dubai Properties||55 billion|
|Nakheel Harbour & Tower||Between Phase 2 of Ibn
Battuta shopping mall and
the 75-km Arabian Canal, Dubai
|Mudon Development||Dubailand||Dubai Properties||21 billion|
|Culture Village||Along Dubai Creek,
next to Garhoud Bridge
|Dubai Properties||13.6 billion|
|Palm Deira||Deirah coastal area, Dubai||Nakheel||12.5 billion|
|Al Salam City||City of Umm Al Quwain||Tameer Holding||8.3 billion|
|Al Burj Tower (The Tall Tower)||Near Jumeirah Lake
Towers and Dubai Marina
|Universal City||Dubailand||Dubailand||2.2 billion|
|Emerald Gateway||Along Coast Road, between Abu Dhabi downtown and Abu Dhabi International Airport||Abu Dhabi Municipality||1.9 billion|
|Aqua Dunya||Dubailand||Dubailand||1.8 billion|
|Dolphin City||Island near Abu Dhabi||Emirates German Group||1.7 billion|
|Nad El Sheba Race course||5-km southeast of Dubai||Meydan LLC||1.3 billion|
|Al Falah||Outskirts of Abu Dhabi||Aldar Properties||0.72 billion|
|Dubailand||ETA Star||0.68 billion|
|Within the Jebel Ali Airport City||n/a||0.45 billion|
However, with the economy already returning to growth, construction on some halted projects is expected to resume by end-2011.
In an effort to help the market, the government has announced over AED165.25 billion (US$45 billion) worth of future projects, which includes investment in transport infrastructure. This is expected to create more jobs and increase demand for real properties.
According to a new property index launched recently by the real estate agents Cluttons, prices in Abu Dhabi were down by around 12% in the last quarter of 2010 from the previous quarter.
The new index shows comprehensive price data for both villas and apartment sales over the past year. The index is based on prices and transactions in ten leading residential areas in Abu Dhabi. Properties included were categorized into high-end (e.g. Raha Beach), medium (e.g. Al Reef), and low end (e.g. Mohammed Bin Zayed City) according to specification.
“An important feature of the Index is that it only considers valuations and sales achieved, and excludes new launches, that are typically priced higher. This helps it reflect the real story and act as a true barometer of the state of the market,” said Harry Goodson Wickes of Cluttons.
Mortgage interest rates in Dubai have, in the past, followed key US Fed rates, because of the peg to the US dollar. The dirham (AED) is pegged to the US dollar at AED3.67 = US$1. In 2008, when the Fed successively cut key rates, the UAE’s central bank was forced to track US monetary policy, causing inflation to hit a record high of 12.9%.
The Central Bank of the UAE set its first benchmark interest rate (overnight repurchase rate) at 4.75% in September 2007. The new repo rate gives the country slightly more flexibility in responding to changes in the US Fed funds rate.
After the Fed slashed its key rate to just 0.13% in December 2008, UAE´s benchmark rate was also reduced to a record low of 1% in January 2009. The key rate has been unchanged since then.
Perhaps surprisingly, banks and other mortgage lenders in the UAE are returning to the market and offering new mortgage products. Tamweel, one of the largest Islamic mortgage lenders, is back in the market, having stopped trading its mortgage shares in November 2008 due to the global credit crunch.
More fixed-rate mortgage products have been introduced. In addition, “fee free” products, which allow borrowers to switch to a new lender at a lower cost, have been offered starting during the last quarter of 2010.
The UAE’s mortgage market has expanded rapidly in recent years. Mortgage loans grew from 4.1% of GDP in 2001, to 14.7% of GDP in 2010. In December 2010, total outstanding mortgage loans rose by 15.2% to AED163.2 billion (US$44.44 billion) from December 2009.
Loan-to-value (LTV) ratios are also increasing again, with some lenders offering as much as 80% LTVs on some projects. In the first quarter of 2011, mortgage loans were offered with interest rates ranging from 5.8% to 6%.
In 2006, the peak of the property boom, the government introduced a rent cap of 15%, to control rent increases. Then in 2007, the rent cap was tightened to 7%. In 2008, the rent cap was again reduced to 5% in an effort to curb inflationary pressures.
In January 2009, Dubai’s Real Estate Regulating Agency (RERA) unveiled a new rental index to replace rent caps. Following this a new rental law was released, establishing the rental index as a benchmark for rent increases.
NEW RENTAL LAW
|CURRENT RENTAL RATES||
|Equal to or 25% below the rental index|
|26% to 35% below the rental index|
|36% to 45% below the rental index|
|46% to 55% below the rental index|
|More than 55% below the rental index|
Then in January 2011, RERA issued Decree No. 2, allowing adjustment of the rental index tables every four months to keep the rental values up-to-date which will also help in capping the rental rates.
Landlords and real estate leasing companies are required by RERA to register rental contracts on the newly-established e-registration portal system, the Ejari System, or face penalties for non-compliance. This will enable the authorities to track the movements of rental values in Dubai and to construct a full and accurate picture of the market. In addition, RERA introduced a rental increase calculator to assist tenants and landlords compute their rent cap figures.
On the other hand, in Abu Dhabi, the 5% rent cap was kept unchanged in 2011 from last year, according to the Abu Dhabi Executive Council. In addition, some amendments were issued to laws concerning the tenant-landlord relationship. These include:
Residential rental rates are still falling. Homeowners unable to sell properties are renting units out, causing the supply of rental houses to rise sharply. Based on the latest report released by Asteco, a property management company:
Annual rents in Q4 in Dubai ranged from AED23,000 (US$6,263) to AED120,000 (US$32,679) for one-bedroom apartments, to from AED70,000 (US$19,063) to AED190,000 (US$51,742) for large three-bedroom apartments, according to Asteco.
On the other hand, annual rents in Abu Dhabi in Q4 ranged from AED35,000 (US$9,531) to AED130,000 (US$35,402) for one-bedroom apartments, to from AED70,000 (US$19,063) to AED260,000 (US$70,804) for three-bedroom apartments.
Rents in specific developments:
Gross rental yields in Dubai are moderate at around 5.6% to 6.5%, according to a research conducted by the Global Property Guide in September 2010. Yields for smaller-sized apartments have moved up, but not those for larger-sized apartments.
Overall GDP growth for UAE was estimated at about 4% in 2013, after expanding by 4.4% in 2012, 3.9% in 2011, and 1.7% in 2010, according to the IMF.
UAE’s real non-oil GDP is expected to expand by 4.8% in 2014 on the back of increased investment in infrastructure and property markets, after Dubai won bid to host World Expo 2020, according to Moody’s Investors Service. Dubai’s winning bid will result in renewed property investment in Dubai, said Moody’s. The rating agency also affirmed UAE’s Aa2 rating with stable outlook.
Hosting the World Expo 2020 is projected to add at least 1.5 percentage points per year to Dubai’s real GDP growth rate from 2014 to 2020, resulting to an average annual growth rate of 5.5%, according to the Institute of International Finance (IIF).
“The theme in 2014 is managing growth dynamics. Non-hydrocarbon factors have been the primary drivers of the economy in 2013. In the capital, Abu Dhabi, there has been a strong pick-up in government spending. In Dubai, the core sectors of trade, services and tourism are performing robustly as the Emirate receives dividends from its position as hub to the fast-growing GCC region,” said Shady Shaher of Standard Chartered.
UAE’s budget surplus was estimated at about 7.9% of GDP in 2013, down from 8.6% of GDP in 2012, but up from 5.2% of GDP in 2011, according to the IMF. The total budget surplus amounted to AED111.5 billion (US$30.4 billion) last year.
In 2013, UAE’s inflation was estimated at about 1.01%, according to the National Bureau of Statistics. Dubai’s overall inflation rate stood at 1.31%, mainly due to increases in the prices of beverages and tobacco, according to Dubai Statistics Centre. Likewise, Abu Dhabi’s inflation rate also increased by 1.3% in 2013, due to a rise in food and housing costs, according to Statistics Centre Abu Dhabi (SCAD).
UAE’s inflation rate is expected to pick up to about 4.2% in 2014, due to increases in house prices which represent 39% of the inflation basket, according to Standard Chartered.
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