Asteco Q2 2022 Real Estate Report : UAE Market Continues to Flourish

The report reveals a strong second quarter in the UAE real estate market

The UAE real estate market remained strong during the second quarter of this year despite global headwinds and rising inflation concerns, showed the Q2 2022 UAE Real Estate Report by property management experts Asteco. In fact, geopolitical tensions experienced globally raised the position of the Emirates as a safe destination to visit, live, work, invest in, and study. The report also linked the increased demand for property to pro-active government reforms such as the introduction of the Golden Visa, and the transition toward a digital economy.

Abu Dhabi Residential and Office Market

Around 1,300 residential apartments were delivered in Abu Dhabi in Q2 2022, spread across different areas of Abu Dhabi with a focus on Al Raha Beach and Al Reem Island. Whilst there has been a significant rise in new project launches during the first half of 2022, several others have already progressed to the planning stage and are expected to start construction within the next 6 to 12 months. The majority of these developments are located in Al Raha Beach, Yas Island and Al Reem Island. A total of 3,400 apartments are expected to be completed by the end of this year in the emirate.

Apartment rental rates remained more or less the same as the last quarter, despite new leases in good quality developments being offered above market rates. On the other hand, some owners are still offering reduced rents and attractive incentives to ensure swift take-up. Meanwhile, villas and townhouses continued to achieve strong levels of demand, particularly within the well-developed villa communities located on Saadiyat Island as well as Yas Island. Although relatively stagnant over the quarter, villa rental rates increased by 5% on average over the past year.

Whilst rental rates in some developments have increased, they are still within the range previously recorded, hence showing no/limited average percentage change over the quarter. No major villa developments have been completed throughout the first two quarters of this year; however, the report expects 300 units to be delivered by the end of this year. Asteco recorded no major changes in the office market over the last three months, annual drops were marginal at 1%.

As for the sales market, strong activity continued in the second quarter of 2022 with increases in demand and transactions. Although villa sales prices remained within the same range recorded last quarter, annual growth stood at 10% on average. Completed villas continued to be well received with emphasis on popular high-quality villa developments. As such, some of these communities recorded double-digit growth compared to the same period last year. Nonetheless, the lack of units available for sale in the secondary market has resulted in particularly high asking prices in several prime communities.

Dubai Residential and Office Market

The first half of 2022 saw a number of successful and notable project launches in the Dubai market. These launches have come as a result of renewed optimism in the real estate market, which was initially bolstered by a strong secondary market. Developers are also eager to reinvest their profits in new project launches in order to capitalise on the current market conditions.

Apartment supply increased significantly from 6,000 units in Q1 2022 to 7,000 in the second quarter, and new villa handovers more than doubled to 520 completed properties. The vast majority of new deliveries were concentrated in new developments such as Damac Hills, Dubai Hills Estate, Wasl Gate, and Port De La Mer. Another 25,000 residential units are scheduled to be completed by the end of the year.

Rental rate growth continued with a similar momentum as last year; average quarterly increases reached 4% for apartments, 6% for villas and 3% for offices, whilst annual growth stood at 15%, 23% and 13%. Demand for larger unit types, particularly villas and townhouses with adequate useable outdoor areas such as balconies and gardens, and a strong community offering remained the focus for residents, thereby driving rental and occupancy rates.

Quality apartments in prominent neighbourhoods also recorded an uptick in interest - not only in established communities such as Palm Jumeirah and Dubai Marina, but also in secondary locations with good community facilities such as those surrounding the Expo 2020 site (along the E311 and E611 corridor). The positive benefits of Expo 2020, including infrastructure upgrades and the repurposing of the site, will undoubtfully be felt across a wide range of sectors for years to come, hence ‘the Expo effect’. Expo City Dubai, formerly known as District 2020, is expected to open in October 2022. It is projected to become an independent free zone, as well as an economic and growth hot spot by featuring affordable housing and becoming a focal point for exhibitions, tourism and logistics.

Asteco expects rental rates to remain elevated in the second half of the year, however, rental growth is expected to slow eventually.

Dubai continued to position itself as a safe and appealing destination for visitors and residents, despite the ongoing geopolitical dynamics, global uncertainty as well as rising commodity and energy prices. Whilst many international markets are still recovering from past/recurring Covid-related lockdowns and restrictions, Dubai’s economy has made great strides. This economic rebound, boosted by higher oil prices and the revival in tourism and trade, resulted in exceptional transaction figures during the first half of the year, particularly with regard to off-plan properties. There has also been a marked increase in high-end/luxury residential unit sales.

Strong inward investment is expected to continue following several business reforms and Government initiatives, such as the Golden Visa, and the transition toward a digital-driven economy; the UAE Cabinet had updated the long-term visa regulations in April 2022, stating that a Golden Visa (10 years) can be obtained when purchasing a property for AED 2 million. The property can be ready or off-plan, and it can be mortgaged through specific local banks. Furthermore, in June 2023, the UAE will introduce (for the first time) a 9% corporate tax on domestic and foreign firms (below the global minimum), which is expected to provide a greater scope for the government to direct funds to priority sectors to achieve its growth and diversification goals in the long run.

Al Ain and Northern Emirates market

Apartment rental rates across the Northern Emirates recorded marginal gains of 1% in Q2 2022, with average annual changes of 4%. Surprisingly, Sharjah office rental rates grew by 3% on average over the last three months and 5% annually, although net effective rents are often influenced by additional incentives offered by landlords such as multiple cheques, rent-free periods and waived/discounted agent commission fees, waiver of service charges and reduced/contributions towards fit-out costs.

According to the Sharjah Real Estate Registration Directorate (SRERD), 21,615 real estate transactions valued at AED 6.3 billion were recorded in the first three months of the year. The majority of transactions related to the residential sector (72.1%), followed by commercial (13.4%), industrial (10.8%) and agricultural (3.7%). In fact, the number of residential properties sold increased by 17.3%, from 1,044 in Q1 2021 to 1,225 in Q1 2022. In addition to the increase in transaction volumes as noted above, sales values also followed the upward trend with average apartment sales prices in Sharjah growing by 2% over the quarter and by 7% compared to the same period last year.

The recent change in the minimum investment requirement for the Golden Visa (AED 2 million) is expected to boost transaction activity, particularly within the new master plan communities.

As for new supply, Arada awarded two contracts worth AED 460 million to build Sendian (430 villas) - the first phase of Masaar which is located in Al Suyoh district of Sharjah, and is expected to add a total of 4,000 villas and townhouses across eight gated districts upon completion. Meanwhile, Sharjah Investment and Development Authority (Shurooq) announced five projects during the Arabian Travel Market in May 2022; those include Chedi Al Bait boutique extension, the Najd Al Meqsar Village, the Lux Al Jabal Resort, the Lux Al Bridi Resort and the Nomad by Mysk.

In Ras Al Khaimah, RAK Properties launched Bay Residence Central I - a residential project comprising 1, 2- and 3-bedroom beachfront apartments located on Hayat Island in Mina Al Arab.

Other major announcements in Q2 2022 included Aldar Properties’ acquisition of Rixos Bab Al Bahr Resort in Ras Al Khaimah, which is widening the developer’s footprint in the Emirate (Aldar bought Al Hamra Mall earlier this year).

Whilst the Al Ain real estate market appeared unchanged across all asset classes, there have been some marginal improvements in demand over the last six to twelve months; apartment and villa rental rates rose above the last market low in Q4 2012, with increases reaching 9% and 7%. No major residential supply was delivered over the last three months, apart from a few stand-alone villas and small residential buildings scattered across different areas of Al Ain. Good quality residential communities continued to be the predominant focus of demand.

Asteco also noticed growing interest for office space resulting in stabilised rental rates in Q2 2022, although it should be noted that net effective rents have somewhat been offset by incentives provided by landlords to secure tenants. Demand for retail space was mainly generated by the F&B sector, with little interest from other operators. Similar to other Emirates, enhanced government reforms and regulations are expected to lift market sentiment and boost residential and commercial performance.