A mixed picture of the property situation in the UAE is emerging. Apartment prices in Abu Dhabi have fallen by up to 15% since May, according to a report by real estate adviser Landmark Advisory published on 7 September.

However, property in the UAE as a whole has begun to show signs of recovery.

Transaction volumes in June and July reached levels last achieved in the third quarter of 2008.

Purchasers fall into two distinct groups. End-users are the dominant buyers of freehold property in Abu Dhabi, but investors continue to make up the majority in Dubai, Landmark Advisory stated in its August sales guide.

‘Sales in both emirates during June and July 2009 have been the most active since the third and fourth quarters of 2008, with the majority of transactions in Abu Dhabi focusing on nearly completed developments, while market prices in Dubai are stabilising in preferred locations and for specific unit types,’ the report said.

Abu Dhabi has weathered the property downturn better than Dubai, where apartment prices have fallen 10% to 15% in the last four months, the report said.

Villa prices in the UAE capital are stabilising after dropping 45% since the third quarter of 2008, the report stated.
On a more positive note, there was evidence that some properties in Abu Dhabi’s Al Reem Island and in the Arabian district of Al Reef Villas have increased between 5% and 10% in recent months.

The outlook for Dubai is less enticing, the report from Landmark observed. Falling rents could have the knock-on effect of reducing sale prices.

Abu Dhabi, Dubai, Cairo and Casablanca are in the best position in the Middle East and North Africa region to attract more long term capital to their real estate markets, according to a new report.

They are destined to perform the best out of 11 cities surveyed in the area by analysts at international property consultants Jones Lang LaSalle as they have the right combination of investment opportunities and competitiveness.

The report, published today (Monday Sept 28), point out that long term investors have been deterred from the Mena region by the short term speculative mentality of both investors and developers.

As a result few sales have occurred recently and a lot of work is needed to create more mature markets, it says.

‘Creating the right environment to attract long term investment into Mena real estate markets remains a work in progress.

While few of the necessary requirements have yet to be fully met, significant progress has certainly been made in many critical areas,’ the report adds.

The last few years saw too much greed and speculation and the need to attract long term, stable investment was ignored.

But now the wholesale withdrawal of speculators and short term investors over the past year due to the global economic crisis offers a chance for positive change.

However, the crisis has also left many property owners needing to hold onto and reposition their assets, some of which they had intended to sell quickly.

On top of this prices and rentals have fallen between 25 and 50%.

Analysts predict that there will be more falls and prices corrections, but at a much slower rate in the rest of 2009.

‘The pace of correction is now easing as global and regional economic stability leads to an improvement in investor sentiment,’ the report says.

It points out that to move ahead the real estate markets need to attract long term regional and global investment.

‘This transition will require a paradigm shift from the previous reliance on short term strategies and rapid implementation to an increased focus on the creation of quality real estate assets that will be attractive to both occupiers and long term property investors,’ it adds.

The key to a successful shift towards a mature real estate market will be private family groups, conglomorates, government entities and institutional investors such as insurance companies, pension funds and listed real estate companies as they bring high volumes of stability and long term capital.

One of the biggest challenges remains oversupply, particularly in Dubai where it is likely to worsen and put further pressure on rents and prices in the short term.

Property investors in the Middle East and North Africa are much more confident than they were six months ago and there are more buyers than sellers leading to pent up demand in the market, according to a new survey.

‘There has been a significant shift among investors from denial of the extent of the crisis to a more realistic acknowledgement of the new normal and a sense that the worst is behind us,’ says the Real Estate Investor Sentiment Survey from consultants Jones Lang LaSalle which questioned 225 leading investors.

In the region Abu Dhabi, Saudi Arabia and Qatar are expected to recover from the downturn first but there is a lot of support for Dubai which is regarded as the regional leader in terms of competitiveness and real estate infrastructure, the report says.

‘A return to 2007 pricing coupled with the successful overhaul of the regulatory environment could see Dubai solidify its position as the leading regional and international destination for investment,’ it adds.

According to Ian Ohan, Head of Investment Transactions for the company’s MENA region, property investors are looking forward to 2010.

‘Investors responding to this survey have a clear expectation of what is required from governments and regulators to support the recovery,’ he explained.

What they believe is needed includes ‘a framework to rectify and resolve real estate issues created by the excesses of the past’ as well as effective economic stimulus and market transparency.

He also explained that investors are sending a clear wake up call to existing real estate owners.

‘The strategies employed by developers and owners in the past will not serve them well in attracting much needed investment,’ Ohan said.

But the report also warns that the MENA region faces stiff competition for real estate markets in the Asia Pacific region.

‘Investors are now favouring Asia Pacific as the strongest expected global performer.

This is perhaps unsurprising given the positive growth rates now being experienced in China and India and the fact that various stimulus packages being introduced by MENA governments have only recently started to take effect,’ the report points out.

Apartment rents in Dubai Rental continued to fall faster than in any other part of the United Arab Emirates during the third quarter of 2009, according to new research.

Three bedroom properties suffered the most with prices falling 13% between July and September, says the report by property services company Asteco.

Average prices for the largest apartments fell to AED139,000 compared to AED173,000 in Abu Dhabi for the same type of property. The rent fell by just 1% in the same period in the UAE capital.

Dubai also saw the largest drop in rent for two bedroom apartments with values down 8% to AED103,000 while the same apartments in Abu Dhabi were a third more expensive at AED137,000.

One bedroom apartments in Dubai dropped by 4% to an average of AED76,000, while the average for the same property in Abu Dhabi was AED28,000 more.

The only type of apartment that didn’t experience a fall in rent in Dubai between July and December was studios where rents held firm at an average of AED45,000.

The prices are attracting more buyers from Abu Dhabi who are then commuting to work.

‘The attractiveness of cheaper rents and better value for money in Dubai is clearly visible from the volume of commuter traffic on the Abu Dhabi roads in the mornings and evening,’ Asteco said in its report.

But the report warns that an influx of new properties coming onto the market in Abu Dhabi could result in rent levels dropping. Almost 1,000 new apartments are due to be delivered to the market in the last quarter of this year, predominantly in off-island locations, including Mussafah, Mohammed Bin Zayed City and Khalifa City.

‘As better quality units are delivered in Abu Dhabi over the next six to 12 months, including Marina Square and Sun and Sky Towers, many daily commuters will consider these developments.

It is clear, however, that this significant group of prospective tenants will benchmark these developments against comparable properties in Dubai, particularly in Dubai Marina,’ the report concludes.

Abu Dhabi based Aldar Properties said it saw land sale transactions pick up in the third quarter of the year and it expects the property market to stabilise next year.

But a report from the Kuwait Specialist Company for Consultancy shows that property trading volumes were down in September compared to the previous month.

Chairman Mohamad Sultan said trades in September reached KD70 million compared to KD111 million in August.

Real estate statistics for the third quarter of the years 2007, 2008, and 2009 show a worrying level of general decline in Kuwait’s real estate market, Sultan added.

He said that the decline was due to the impact of the world economic crisis and the low commercial activity in the country in general and he called on local banks and investment companies to expand financial facilities for the real estate sector, adding that a slight increase in the level of demand was expected up to the end of 2009.

Meanwhile, Dubai developer Deyaar revealed that it has axed 20% of its total workforce following a review and rationalisation of resources.

A spokesman for Deyaar would not confirm the exact number of job losses but said they were the first cuts since the global financial downturn began.

It has also just reported a 74% drop in third quarter profits.

Information from Shafqat Malik, chief financial officer at Aldar Properties, shows just how volatile the market has been in 2009.

The firm saw a modest rise in property sales in the first half of the year, but there were no land sales in the second quarter.

Things began to pick up modestly in the third quarter.

‘We started to see openings in the market, transactions are starting to happen,’ he said and in particular demand for one and two bedroom flats, suggesting that real estate buyers are returning to the lower end of the market.

This has prompted a change around for the company which has tended to concentrate on high end properties but will now look more at middle and low end real estate.

‘This rationalisation of resources has been carried out to support  Deyaar’s sustained growth and maintain its commitments to customers, partners and shareholders in the most efficient possible manner,’ a statement said.

New laws to help make the real estate market in Abu Dhabi more transparent and safer for buyers are expected to be introduced in the early months of next year.

Officials at the Department of Municipal Affairs are currently drawing up the necessary draft documents that will cover escrow accounts, brokers, titles and mortgages.

Regulations covering planning and building are also under consideration.

It is expected that overall five set of regulations will be incorporated in the existing law 19 of 2005 that sets rules for real estate developers, contractors and brokers.

It also includes rules covering off-plan sales, licensing of high rise residential buildings and property registration.

There is no date yet being given as to when they will be introduced but an official told Property Wire that they will only be enforceable once they are published in the Gazette.

‘We are confident that the new set of laws will be the most thorough in the Gulf region.

They will improve regulation and give investors greater confidence when investing in the emirate.

They will give investors comfort to know they are investing in a property with a real title deed and that the system of ownership is recognised in line with best international practices,’ he added.

Central to the proposed introduction of the laws will be a change in the freehold ownership of land. In 2002, Dubai introduced freehold ownership of property in selected areas, sparking its six-year real estate boom. Now they will be extended.

Plans are also underway to bring in strata laws, which regulate the ownership of units within a building and broker laws, which regulate the practices of estate agents and commercial leasing agents.

An improved escrow law will cover commercial and residential property and protect investors and ensure developers actually deliver projects.

Improving the quality of construction in Abu Dhabi is also on the agenda.

There have been several building collapses in the United Arab Emirates in recent months including in Dubai and Sharjah, putting the issue at the top of the agenda.

‘We will be looking at new constructions as well,’ the department official confirmed.

Once the building codes are introduced they will become law and will be implemented only within Abu Dhabi but other emirates are expected to follow with their own new rules.

Property sales in Abu Dhabi are expected to remain weak for the remainder of 2009, but are likely to stabilise during 2010, according to the latest report.

Rents in the emirate are also falling and landlords will need to adopt a more flexible approach to stay competitive, the report from consultants CB Richard Ellis says.

The second quarter of the year was a testing time for the Abu Dhabi property market with demand weakening across all market sectors.

‘Remarkably, this same period last year was epitomised by rampant growth when momentum in the real estate market appeared unstoppable.

The swift and abrupt end to off plan sales activity is reflected in declining sales prices universally,’ it says.

The situation is unlikely to improve in 2009.

‘Investment decisions remain on hold with minimal activity expected before the final quarter as we enter the traditionally quieter holiday period followed by the holy month of Ramadan,’ the report predicts.

Analysts say that both developers and investors are more attentive to fluctuations of key market indicators and vigilant on where exactly this current downturn can go.

But there are some encouraging signs in terms of price stability with declines slowing.

Overall prices and sales during the third quarter were at an extremely low level. Average sale prices for high-end apartments and villas started from Dh11,300 per square meter and Dh8,600 per square meter, respectively.

In the rental market rates fell significantly during the first six months of the year but the decline slowed down in the third quarter, particularly for housing units situated within the central business district.

Apartment rents in central locations dropped by around 5% compared to the second quarter, while many apartment rents actually remained unchanged.

The report says that average annual rents for a one bedroom apartment in the city centre range from Dh100,000 per annum to Dh130,000 per annum, while prime units are still in excess of Dh140,000 per annum.

‘Low levels of investment reflected the unmatched expectations of both existing investors and potential buyers with owners of properties reluctant to succumb to lower values in anticipation of a positive cyclical spin, while buyers are wary of a continued downturn in asset values,’ said Matthew Green, Associate Director, CB Richard Ellis Middle East.

Dubai is still reeling today from the revelation that it cannot re-pay its $80 billion of debt of which $60 billion is owed by Dubai World, parent company of master Developer Nakheel.

Dubai World, flagship of the Emirate and the company behind iconic developments such as The World and Palm Jumeirah, announced a six month standstill and said it will not be able to pay creditors until at least May 2010.

The news has sent shock waves through global markets and credit agencies Moody’s Investors Service and Standard & Poor’s downgraded the company and other government related firms.

The situation demonstrates the depth of problems in the Dubai property market as Dubai World was one of the key driving factors behind the real estate boom in the Emirate.

The financial woes have long been suspected with property prices falling up to 50% in the last year and analysts warning that Dubai was in for a fall.

An estimated 400 projects worth more than $300 billion have been cancelled, shut down or are on a go slow as developers try to cope with property prices that are still moving downwards.

Many in the real estate industry hoped that the hype put out by the government just might be true.

A year ago the government proudly declared that the Emirate was not badly affected by the global downturn.

It even downplayed the fact that it received a $5 billion bond bail out from the UAE federal government.

Now any illusions that Dubai can weather the economic storm without lasting harm have gone as Dubai World accounts for most of Dubai’s debt which is put at a total of $80 billion.

Unlike neighbouring Abu Dhabi, Dubai cannot rely on oil revenues to bail itself out.

With one of the largest and most prestigious developers in trouble there are concerns that many parts of Dubai will become a giant ghost of a construction site.

And it won’t just be ordinary investors who will be wondering what is going to happen to their money.

A number of celebrities including actor Brad Pitt, footballers David Beckham, Andy Cole, and Michael Owen, have all bought off plan in the Emirate.

It clear that Dubai cannot hide the extent of its problems any more.

While the debts are frozen until at least May 2010, accountants Deloitte will draw up a restructuring plan.

Dubai’s $80 billion debt was borrowed on a short term basis with all of it due to be repaid in the next three years.

Abu Dhabi’s $10 billion bailout of troubled Dubai will do little to rescues its beleaguered property market or to tempt overseas buyers back to the emirate until late 2011 and beyond, it is claimed.

Dubai’s ailing property market had shown tentative signs of recovery in recent weeks after prices fell by up to 50% in the last year but when state backed Dubai World sought a standstill on debts of $26 billion that dealt a serious blow.

Abu Dhabi stepped in earlier this week to prevent Dubai World’s development arm Nakheel, from defaulting on a $4.1 billion Islamic bond due on December 14, but the move has seriously dented investor confidence.

‘It will definitely delay the recovery of the property market by 18 months to the second half of 2011,’ said Patrick Rahal, a Doha-based senior analyst at The First Investor bank.
Others are more pessimistic. ‘I wouldn’t like to even guess when this market might return to the good times,’ said Jonathan Thompson, global head of real estate at KPMG in London.

The handling of the situation has not helped with the announcement that Dubai World was seeking a six month delay on paying its creditors coming in the middle of a religious holiday. Some are wondering if there is more bad news to come.

However the psychological impact of the bailout is positive even although the market is still fundamentally weak, according to Saud Masud, head of research and senior real estate analyst for the Middle East and North Africa at UBS.

The main problem is still oversupply, he said, and property prices are expected to drop another 20 to 30% by the middle of 2011. The spectre of fresh fire sales now haunts the market and this could dilute the impact of the Abu Dhabi’s bailout package.

Also investors shocked by the government’s decision not to guarantee the debts of related entities like Nakheel will encourage some nervous investors to pull out early, putting new downward pressure on prices, according to Sana Kapadia, vice president of equity research at Egyptian bank EFG Hermes in Dubai.

A number of international property investors had already relegated the emirate to the bottom of their property investment wish lists. Even opportunistic property investors like London’s Enstar Capital are retreating from Dubai, citing concerns that the current debt restructuring is just the beginning. ‘One of our biggest fears is that Dubai’s reported debts of $75 billion are actually in fact much larger,’ said Enstar co-founder Farid Alizadeh.

‘Having seen what has happened in Iceland and others, investors in such times go to what are deemed safe havens and if Abu Dhabi is bailing Dubai out then it will be Abu Dhabi which will be deemed a safe haven and not Dubai,’ Enstar co-founder Simon Lyons added.

Countries in the Middle East and North Africa region are seeing an improvement in their real estate potential despite the economic downturn, according to a new report.

The United Arab Emirates has risen significantly from 31st to 18th place in the 2010 Real Estate Global Opportunity Index from consultants AT Kearney which focuses on emerging markets. Saudi Arabia is in fourth place and Egypt has moved from 39th to 22nd.

Designed to help property developers decide where to expand outside familiar markets, the index examines real estate development potential based on construction spending and growth, as well as risk potential and ease of doing business.

Asia remains the top global region with six countries in the top ten. China top the league followed by South Korea and India. In fourth place is Saudi Arabia followed by Brazil, Taiwan, Russia, Poland, Singapore and Hong Kong.
‘Recently, conditions in most emerging markets seem to be improving thanks to government stimulus, infrastructure investment and a resumption of lending. In large emerging markets such as India and China consumer needs not speculators will drive long term demand,’ the report says.
‘As interest rates fall mortgage markets are re-opening in support of new developments, particularly in Saudi Arabia. Real estate investors are also seeking structured and more liquid investment vehicles that have more transparent governance rules,’ it adds.

It is the Gulf region that holds most promise. ‘Low real estate prices could put the UAE back on track for attracting foreign investors, who are already interested in the region for its other advantages. Gulf oil reserves, amounting to more than $5 trillion, give the area ample financial strength, and the region’s lifestyle, particularly in the UAE, is attractive to foreign companies. As development projects are tempo¬rarily or permanently halted, the oversupply will begin to diminish, the report says.
Dubai’s experience, where prices have dropped up to 50% in the last year, should offer a cautionary tale for the other GCC countries to manage supply in accordance with demand, it says. ‘At the same time, though, Dubai’s capacity to rebound fast should not be underestimated. Both Dubai and Abu Dhabi recorded their best real estate results in almost a year during and since the summer. For investors, the UAE real estate sector remains cheap in relation to its global peers,’ it adds.

On the positive side the report points out that the UAE’s governments have shown a clear dedication to continuous infrastructure investment and in the long run oil revenues will support future rebounds as prices rise and supply tightens.
In Abu Dhabi tourism and airport traffic are up, bank lending criteria for residential sales have been relaxed, construction costs are down 30% since the end of 2008 and the country remains cash-rich, the consulting firm says.

Abu Dhabi also had a large number of large scale projects under way including Sa’adiyat Island, Al Sowwah, Reem Island and Masdar, the world’s first carbon-neutral city. It has a $200 billion real estate plan and many high visibility projects, such as the suc¬cessful Formula 1 racing event on Yas Island, and is supported by a relative undersupply in both Grade A commercial and residential segments and an economic vision based on attracting a diverse set of industries.