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What are the key highlights of the real estate sector in Abu Dhabi and Dubai? What is the outlook for the second half of 2023?
In the first quarter of 2023, Abu Dhabi, Al Ain and Sharjah saw a more modest annual growth trend in rent growth for apartments, villas and offices, while Dubai continued to see substantial increases in rental rates. Villa rents in Dubai are thus an impressive 3% above the market peak in Q2 2014.
In terms of sales prices, Dubai experienced double-digit growth, while Abu Dhabi saw little change. Interestingly, off-the-plan sales in Dubai and Abu Dhabi were much higher than completed properties. While reconciling this premium may be challenging, it highlights strong demand for off-the-plan purchases given the immediate rental return or occupancy offered by completed properties.
Also, it is worth noting that sales prices in Abu Dhabi are still quite competitive compared to similar properties in Dubai. This means Abu Dhabi offers exceptional value for buyers in the market. Overall, these market dynamics showcase positive trends and opportunities in the real estate industry.
Which key real estate projects will be delivered in the second half of 2023? How will this affect supply from Abu Dhabi and Dubai?
Development projects in Abu Dhabi show no signs of slowing down through the remainder of 2023.Although several new projects are currently in the planning and design stage and are expected to be launched within the year, the market still lacks a sufficient number of high-quality projects
villa community.
Approximately 4,450 residential units will be completed by the end of 2023. Major projects include Noya Villas on Yas Island, some buildings at Al Raha Beach and Luluat Al Raha, two developments in Masdar City, some villas on Jubail Island. Except for a few buildings in Qaryat Al Hidd on Saadiyat Island.
In Dubai, we expect to deliver another 35,000 apartments and 6,800 villas in 2023. New stock will be added across all emirates of Dubai, with deliveries in established neighborhoods such as Downtown Dubai, Business Bay and Jumeirah Village, as well as upcoming developments including Mohammed bin Rashid City, Dubai South and Dubai Creek Harbour.
MBR City will complete most of the handover of more than 10,000 residential units.
Do you think rents and sales prices will also increase in the second half of the year?
In Abu Dhabi, residential rents (apartments and villas) are expected to remain broadly stable, with modest increases in selected developments.
Sales prices are expected to remain generally stable in 2023, but the lack of ‘good quality’ completed projects/units available for sale in the secondary market will help boost sales prices for specific developments/locations.
Demand for high-quality, well-located off-the-plan projects at competitive prices will remain positive.
In Dubai, we expect rental growth to continue, albeit at a slower pace, until a new supply balance is established and rental growth moderates. It’s also worth noting that the Dubai government plans to launch a new rental index in 2023, which will be based on building star ratings, reflecting quality and amenities rather than location and/or neighborhood trends.
Initially, the index will only cover residential buildings, and villas will be considered at a later stage. Four-star buildings (ultra-luxury buildings) will be classified as “free” under the new index. This means rent increases will not be capped.
Buildings with lower ratings can only increase rents under RERA policy after approval. Sales prices are also expected to follow a similar trend. Overall, villa communities (both old and new) in particular will continue to perform well.
Please tell us your outlook for the primary and secondary markets. Which one might do a better job?
The markets in Dubai and Abu Dhabi are witnessing a notable trend in off-the-plan sales, with properties commanding a significant premium compared to completed properties. While this trend is expected to continue, it is likely to be short-lived.
Notably, sale prices in Abu Dhabi remain at deep discounts compared to comparable properties in Dubai and offer excellent value. Prices for off-the-plan prime prime projects on Saadiyat Island and Yas Island range from AED 1,500 to AED 3,800 psf/salable area.
What trends will emerge in the commercial real estate markets in Abu Dhabi and Dubai?
Over the past 6-12 months, we have seen a marked uptick in the Abu Dhabi and Dubai office markets and expect this trend to continue in the short to medium term.
Quality or quantity is the key here. Well-managed, single-owned buildings with Grade A specifications in strategic locations will perform better and may increase occupancy and performance.
Strong inward investment, backed by advanced business reforms and government initiatives, has boosted business confidence and new entrants to the market, thereby stimulating demand for office space, especially for Grade A/B+ specifications in prime locations.
Technological advancements, telecommuting, co-working and virtual offices have made the need for physical office space an option rather than a necessity. This will affect office performance, especially old inventory.
In a market like this, what should a potential real estate investor consider?
Due diligence is crucial here, as both off-plan and ready-to-move-in properties have advantages and disadvantages. Consider the time frame of owning the property, availability of funds, your preferred location, profitability and reputation of the developer and the quality of other completed projects before making your final decision.
Choose the option that best meets your current needs, but most importantly, make sure the property you are contemplating buying has been or will be built by a strong real estate developer.
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