The COVID-19 pandemic has caused a shift in demand towards bigger homes with balconies and more open spaces in Dubai. Residents, especially for families with children, now prefer affordable apartments and villas in communities with amenities and facilities, as many were forced to stay at home during the pandemic. Bigger units became attainable for people within the mid-income bracket.
In response to challenging market conditions some developers have introduced attractive payment plans, including rent-to-own scheme that allows tenants to become homeowners over a 10-year period by paying rent towards ownership and without having to make a down payment.
Such schemes coupled with the UAE Central Bank's new encouraging measures, such as 5% increase in loan-to-value for first-time home buyers, have facilitated tenants to transition to property ownership.
Online real estate viewings came as a key technological trend during the pandemic and helped facilitate sale and rental transactions within the country as well as overseas amid hesitation to travel. Despite declining rents and sales, yields hold steady in the emirate making it even more attractive investment option for investors from all over the world.
Q3 2020 also witnessed a geopolitical turning point in the form of a peace agreement between the UAE and Israel. The agreement is expected to have a positive impact on the property market, since Israeli investors, who have not been able to take part in the
UAE’s real estate market so far, now will be able to benefit from the attractive investment opportunities that the Dubai and UAE market offers.
According to Property Monitor, average housing prices in Dubai decreased by 11.7% year on year, from Q3 2019 to Q3 2020, and by 4.6% quarter on quarter.
Average apartment rents fell by 15.9% year on year, from Q3 2019 to Q3 2020, and by 5.9% quarter on quarter. As for villa/townhouse rents, they declined 8.9% from the previous year and 2% on a quarterly basis.
The property price decline that had already been underway in Dubai over the past several quarters worsened with the beginning of the pandemic impacting demand in an oversupplied market. Property Monitor data show, that property prices in September stood at USD 224 per sq ft, which was just below similar rates registered in January 2009. As of September 2020, they were 33.3% lower than during the market peak in September 2014 and only 4.8% from the previous market decline in April 2009.
Gross rental yields have remained fairly stable – about 6%, indicating that rents have declined in line with property prices. An abundance of options now available at more affordable rates have given many tenants an opportunity to relocate to larger spaces and better communities, or both. On the other hand, many tenants are turning owners of property, taking advantage of the favourable interest rate environment and the increased loan-to-value (LTV) ratio applicable to mortgages for first-time buyers introduced earlier this year.
Q3 2020 saw 8,511 transactions compared to 10,374 in Q3 2019, a 17.9% decrease. However, a significant increase of 56% in transactions was recorded in Q3 2020 compared to 5,469 in Q2 2020. This reflects a further recovery in the real estate sector post the temporary COVID-19 restrictive measures in Dubai.
Following the lift of movement restrictions in the second quarter, transaction activity gained momentum in the subsequent months. The number of transactions in August was 2,462, which was relatively strong compared to other August periods. The point is, that historically, August has always been a slow month for transactions, as it is the peak of summer in Dubai and many residents and citizens travel abroad, while tourists wait for cooler months to visit the UAE. Low interest rates continued to drive mortgage transactions during the given period, including initial mortgages as well as refinancing.
In Q3 2020, a total of 2,892 secondary apartments was transferred, while off-plan apartments sales totalled 1,999. The overall number of villas/townhouses transferred was 1,699 and off-plan villas/townhouses transferred were 752.
Dubai still has a plentiful supply of housing, however, a shortage of inventory is notable in certain popular neighbourhoods. For example, demand outpaces supply in such well-established villa and townhouse communities as Jumeirah Golf Estates, DAMAC Hills, Jumeirah Islands and Arabian Ranches. The pace of price decline in such communities has significantly slowed over the past months, with some even registering marginal increases.
Many measures have been taken by the UAE government to protect citizens and residents from the spread of the virus during the pandemic. But as construction is a vital sector of the country's economy, it was exempt from the lockdown restrictions and construction sites were permitted to continue work. Only few projects were put on hold, so about 16,400 units are scheduled for delivery in Dubai by the end of 2020.
Abu Dhabi’s residential property market remained under pressure as a result of COVID-19 situation and the economic slowdown that began with the oil prices decline in 2014. Lower business activity in the emirate has impacted jobs, which resulted, in its turn, in reduced housing demand. Job losses and readjustments of employee benefits packages such as housing allowances have been the main factors that affected the overall market.
Average sales prices for apartments fell in Abu Dhabi’s major residential zones by 5.6% from Q1 2020 to Q3 2020. Villa/townhouse prices declined by 5.3% over the same period.
Rents in Abu Dhabi in Q3 2020 went down, too, both for apartments and villas/townhouses. The average decline was 6.1% for apartments and 6.2% for villas/townhouses from Q1 2020 to Q3 2020.
In order to soften the impact of COVID-19 on the real estate market, the Department of Municipalities and Transport (DMT) has launched several initiatives, including exempting individuals and companies from paying 34 real estate registration fees until the end of 2020. As a result, according to DMT statistics, the value of real estate transactions in Abu Dhabi increased by 34% to reach USD 1.7 billion by the end of April 2020. Over 2,600 real estate deals were signed during the period, compared to 1,840 deals worth USD 1.2 billion during the same period last year. 60% of the total real estate transactions in April 2020 were mortgages valued at USD 1.03 billion for over 1,170 mortgage transactions, compared to 598 mortgage transactions worth USD 517 million registered in the same period in 2019.
Yas Island had the highest value of the total real estate transactions in April 2020 amounting to USD 209.9 million. It is followed by Al Reem Island with USD 75.9 million,
Saadiyat Island with USD 73.5 million, Al Reef with USD 69 million and Al-Faqa with USD 43.2 million.
Abu Dhabi’s upcoming supply for 2020 is estimated to be over 6,100 apartments and 450 villas/townhouses. However, actual number of delivered units may appear to be lower, due to projects delays and phased delivery by developers.
In Q3 2020, rents across the northern emirates continued to decline, the trend seen over the previous quarters.
Taking advantage of this decline residents upgraded their residential units and moved to larger spaces. Landlords of apartments in the northern emirates experience the double pressure of increasing supply as well as falling rental rates in Dubai, which has made the latter more affordable. As a result, tenants are now able to negotiate their rents lower.
Real estate agencies and landlords have also taken multiple steps attempting to attract tenants and reduce the financial burden on them from the pandemic. Among several incentives they have offered are extension of contracts, free months on new leases and exemption from various fees and any penalties.
The average rental price in Sharjah remained under pressure in Q3 2020 because of the COVID-19 pandemic.
It was increasingly affordable rates that helped facilitate transaction activity. The Sharjah Real Estate Registration Department (SRERD) reported, that the emirate recorded up to 28,710 real estate transactions worth USD 1.6 billion in the first half of 2020. In Q3, there was a 10% rise in transactions compared to the same period in 2019, with the number of real estate transactions amounting to over 14,850 valued at USD 1.2 billion.
In Q3 2020, rental prices in Ajman fell notably, encouraging tenants to upgrade their units for better quality and more space.
To protect client health during the COVID-19 pandemic the Ajman Department of Municipality and Planning introduced the Visual Communication Service (Gareeb) to help carry on with real estate operations during the pandemic.
UMM AL QUWAIN, RAS AL KHAIMAH AND FUJAIRAH
In Q3 2020, the annual rent for apartments in Umm Al Quwain ranged from 2,722 per year for studios to 7,350 per year for three-bedroom apartments depending on property location, age, condition and specification.
According to Ras Al Khaimah Municipality Department, the total the total value of sales transactions in Q2 2020 was USD 42.5 million compared to USD 56.5 million in Q1 2020, dropping by 25% quarter on quarter. This significant drop was caused by many factors, including the movement restrictions in the early stages of the pandemic, job losses and uncertainty about the timing of a market recovery. However, transactions in July reached USD 29.4 million, representing a good start to the third quarter of the year.
In Q3 2020, the annual apartment rent in Fujairah ranged from 3,539 to 7,623 per year for studios and from 7,623 to 9,801 per year for three-bedroom apartments, based on property location, age, condition and specification.