The GCC’s real estate resurgence

The resilience of the GCC’s real estate market has proven itself yet again this year, having weathered several stifling months of economic headwinds to re–establish itself as one of the region’s most talked–about industries.

The caution of the past couple of years has started to give way to restored confidence as oil prices stabilise, governments’ diversification efforts continue to take shape and global investors return to the scene.

Not to mention the raft of announcements that have won widespread favour among stakeholders, such as the promise of 10–year visas in the UAE.

That particular announcement by the UAE cabinet in May this year had an immediate impact on the property market, pleasing investors and developers and seeing stocks rise in trading by almost 5 per cent in some cases.

The outpouring of support was instant. Ali Rashid Lootah, chairman of Dubai developer Nakheel, issued a statement welcoming the change, which he said would undoubtedly have a positive effect on the UAE economy – and in particular the real estate sector”. Marie Salem, director of capital markets at FFA Dubai, said the move would “surely boost the performance of the real estate sector and give comfort to the investors there”.

CEO and head of architecture at Binghatti Developers, Muhammed BinGhatti called it a “momentous” decision that would “undoubtedly have a highly positive effect on the real estate sector”, and Dubizzle’s general manager for property, Samer Abdin, added it would “encourage more foreign investment in the market, resulting in a more vibrant property industry”.

The new long–term visa is designed for international investors and talented professionals in certain sectors, and was announced alongside plans to approve an investment law allowing 100 per cent foreign ownership by year–end. Allowing holders to stay in the UAE for up to 10 years rather than the current one, two or three–year visas, the move is expected to attract a flood of investment from outside the country.

“There is a push to increase investor sentiment,” says Kara Patterson, exhibition manager at Cityscape Global, who called the recent announcement a “massive boon for the real estate market in the UAE and around the region”.

“It will no doubt lead to a significant inflow of capital from both local and international investors,” she continues.

“It’s quite a timely decision, which will also encourage developers to launch new projects in the market to appeal to both investors and homebuyers – particularly expats as the law will certainly change the way they view property ownership and offer them further incentive to invest in the UAE.

“The law will also lead to a rise in global economic competitiveness for the UAE, and positions the country as a gateway to the rest of the region for investors and international companies.”

CEO of construction firm ASGC, Bishoy Azmy, agrees that the visa and ownership developments are positive for the sector, with benefits to various stakeholders.
“This will allow for an untapped international investors pool to inject new ideas and creativity into the UAE economy,” he says.

“Some of the indirect effects may also include renewed confidence in the property market and an increase in expat end–user purchases, who are perhaps more likely to invest in their own homes within the UAE instead of repatriation to their home countries.”

The key benefit almost universally agreed upon, however, is the projected increase in foreign direct investment.

Any increases in investment will add to what is already an impressive FDI scenario for the UAE. Dubai in particular was identified by consultants JLL in March as one of the world’s top destinations for real estate FDI.

In its report World Cities: Mapping the Pathways to Success, JLL included the emirate in a new group of ‘hybrid’ cities that have attributes of either ‘emerging world cities’ or ‘new world cities’.

The authors highlighted that Dubai has been making progress in improving real estate transparency, which has encouraged foreign investor activity in recent months.
It’s a position backed up by the UN Conference on Trade and Development’s World Investment Report 2018, which stated that overall FDI in the UAE rose by 8 per cent between 2016 and 2017 – up from $9.6bn to $10.4bn.

“On the whole, investors still view this market as a lucrative one,” says Azmy.

“The UAE’s leaders are steering the country in a very strong direction and this has increased confidence in the real estate and construction sectors.

“Safeguards and realty rules introduced by governments to prevent market saturation have been welcomed. There are also a lot of projects that give investors reason for confidence, whether in social infrastructure, hospitality, commercial or residential properties.”

Patterson adds that recent collaborations have added to the positive investor sentiment.

“Heavyweights Aldar Properties and Emaar Properties signed a partnership to develop iconic projects worth Dhs30bn – a factor that will no doubt anchor the market moving forward,” she explains.

“We also saw Savills UK acquire Cluttons’ Middle East earlier in June to reach out to a wider Middle East audience.

“These industry collaborations speak to a greater desire for developers and real estate professionals to work together for investors and provide collective investment vehicles.”

On top of the visas, 100 per cent ownership, infrastructure improvements and collaborations, there are other moves that have boosted confidence in the market.

Yousef Wahbah, MENA real estate, hospitality and construction sector leader at EY explains that incentives and fee waivers have also contributed – especially in Dubai, where he says the government has been proactive in improving the real estate landscape.

“The GCC real estate market is experiencing the pressures of increased supply and subdued macro–economic conditions,” he says.

“Different sub–markets within the region have had varied levels of performance but the overall sentiment is that the market needs a boost.

“The Dubai government has recognised this and has introduced incentives in terms of lowered municipality fees, DLD fee waivers, exempting businesses from fines and trade violations and allowing fees to be paid in instalments.

“Furthermore, the announcements of 100 per cent freehold ownership and 10–year visas echo the focus to support and boost the current economic environment.”

Speaking from a developer’s perspective, Atif Rahman, director and partner of Dubai-based Danube Properties, confirms that investors have continually been drawn to the UAE.

“There is always a market for the right product at the right price,” he says.

“The investor confidence is driven by ease of transactions, security of investment and deliveries. We have consistently grown in both volume and value since we started the business, and we see the trend continuing.”

He adds that the impact of Dubai Expo 2020 should not be overlooked.

“The unique thing about this event is that it is for businesses and participating nations who will get a first hand experience of the immense opportunity the Middle East contains,” he explains.

“It promises to drive growth in the economy and population, which in turn requires real estate.

“I did my research on the last two Expo venues [Milan in 2015, and Shanghai in 2010], and the appreciation in real estate prices led by increased demand post-Expo
is unprecedented.

“Dubai is definitely a profitable and safe real estate investment opportunity.”

Saudi Arabia’s Vision 2030 plans, and the continuing growth of tourism across the region, are also laying solid foundations for the future of the GCC’s real estate market.

Indeed, the sector in Saudi Arabia is expected to benefit greatly from its diversification plans, with facilities management also gaining, according to this year’s Al Masah Capital report GCC Real Estate and Facility Management & Support Services.

“Under Vision 2030, the real estate and tourism sectors are expected to witness major investment as part of a diversification effort,” states the report.

“The government is majorly focussing on setting up local manufacturing units, developing export–oriented manufacturing centres. Additionally, the government has also announced mega projects in order to develop housing units to enable 52 per cent of its citizens to have their own houses by 2020.

“These key initiatives are likely to boost the demand for FM services in the country.”

Hopes are certainly high in the kingdom in the wake of the vision, launched in 2016 by Crown Prince Mohammad bin Salman in a bid to withdraw the country from its hitherto dependency on oil.

A 2017 Real Estate Barometer study by YouGov and Restatex Cityscape Riyadh found that half of the homebuyers and property investors in Saudi Arabia questioned expect the plan to increase real estate market development in Riyadh – particularly residential properties (33 per cent), while 43 per cent expect an increase in real estate development in Jeddah and Makkah.

Patterson explains that real estate has played a “pivotal role” in both Saudi Arabia’s and the UAE’s diversification efforts, adding: “Saudi Arabia’s blueprint for diversification, the National Transformation Programme and Vision 2030, has seen several real estate projects and initiatives launched to boost its non–oil sector.”

Danube’s Rahman adds: “The shift from oil has definitely benefitted the real estate sector, which is driving economic growth now with many construction activities taking place to build new homes.

“Industry players are definitely making the most of it by accelerating the pace of real estate project implementation. If you look around, most active developers are building a decent number of projects.”

But the growing number of projects being developed can potentially have negative effects, too.

Oversupply has long been identified as a problem on the horizon of some regional markets – most notably Dubai, which has traditionally been an epicentre of developer activity.

A JLL report said that 570,000 units of new supply could enter the Dubai market by 2020 – an average annual increase of 8 per cent, while population is expected to grow at an average of 3 per cent.

Cluttons’ head of research Faisal Durranti told Saudi newspaper Arab News: “There has been a sort of ‘build it and they will come’ type of attitude recently, and that has left us with the danger of the market being tremendously oversupplied in two or three years’ time.”

But EY’s Wahbah says that “not all projects that were announced across the region are expected to come online as planned,” and that the increase in supply specifically in the UAE has “pushed developers to create differentiated products that stand out in the market”.

He elaborates on the benefit this is creating for the end customer: “Developers in the region are in an competitive market where oversupply and pressures on the top and bottom lines have made it even more important to have differentiated products that appeal to more demanding customers.”

And this is not the only way oversupply and competition is changing the market. He adds that trends in the GCC are changing as a result, including: “Unique features with the efficient use of space and technology, marketing strategies focused on digital campaigns to cater to a market with one of the world’s highest internet and mobile penetration rates, guaranteed returns for international and local investors, affordable payment plans, and the ability to facilitate financing through preferred lenders and banks.”

Cityscape’s Patterson agrees that competition is driving positive change in the region’s real estate industry, with recent projects taking on different identities in a bid to attract investors.

“We have witnessed quite a diverse range of real estate projects coming up,” she says.

“From projects that create a dynamic, integrated community that fosters creativity, to masterplan communities that utilise the work–play concept – an increasingly essential standard in mixed–use developments today.

“This tells us there is an increasing emphasis on sophisticated projects and that developers are shifting their focus to create more holistic urban and cultural environments driven by a young, diverse population.

“That said, developers are constantly evolving to speak to the demands of investors and homebuyers, and while innovative mixed–use developments are the trend, mid–income housing is another segment we expect to see from developers.”

She adds that the affordable housing segment is “one of the most lucrative real estate investment opportunities” for the region at present, offering high investment returns and greater stability against economic headwinds.

Last year, Dubai took steps to encourage this segment, announcing a policy on affordable housing. Speaking to Gulf News, Mahmoud Al Burai, CEO of the Dubai Real Estate Institute said: “The policy maintains price stability and motivates developers to dedicate a percentage of their projects to low–income residents.

“As a result we are seeing an increase in project and financing options.”

Meeting the demand for property for people earning up to around Dhs15,000 per month, developers including Nshama, Aldar, Danube and others are making moves to take advantage of this opportunity which is adding to the Gulf’s property mix.

The push to rejuvenate the region’s real estate market is already turning heads, courtesy of government incentives and initiatives, diversification plans and greater creativity from developers.

With so much interest from investors as a result, it is little surprise that the sector is on the rise once again, reconfirming real estate as a staple of GCC growth.