Real Estate The new boom: 5 trends shaping Gulf property markets By Staff Writer May 9, 2022 Dubai Marina's residential towers. Picture: IMM/Creative Commons Demand for real estate in the GCC region is outpacing supply, keeping prices high and contributing to record transaction levels in the property hotspot of Dubai. AGBI looks at the key factors influencing the markets this year. 1 Economic resurgence Gulf economies are rebounding after the sluggish years that followed the 2014 oil price collapse and the coronavirus outbreak – and real estate markets are bouncing back with them. The International Monetary Fund is projecting global GDP growth of 3.6 percent in 2022, with the UAE and Saudi Arabia ahead of the pack at 4.2 percent and 7.6 percent respectively thanks to higher oil prices and wide vaccine coverage. Government initiatives such as the UAE’s residency permits for remote workers and retired people have also fired up market sentiment. In Dubai, the volume of residential sales transactions hit 5,538 in February, a 58 percent rise compared to a year earlier, according to a March paper from consultancy CBRE. Total transaction volumes in the year to February were 11,071 – the highest total yet recorded in the first two months of a year. In Saudi Arabia, real estate activity is also expected to rebound this year, according to CBRE. The kingdom’s residential property market experienced a slowdown in 2021, with overall transaction volumes falling by 5.3 percent in the year to the fourth quarter. 2 Rising prices Stronger economic conditions are pushing up prices as demand grows. Dubai is in a house price boom reaching heights not seen since the emirate’s last market peak in 2014. Residential property prices jumped 21 percent in the first 10 months of 2021, according to Knight Frank Middle East. However, a tempered release of supply is softening the rise – average prices increased by 10.7 percent in the year to February 2022, according to CBRE. In other parts of the UAE, the market is cooler. Average residential property prices in Abu Dhabi increased by 1.6 percent year-on-year as of the fourth quarter of 2021. “The question is, how long can the [Dubai] price boom continue,” said Taimur Khan, associate director and head of research at CBRE. “We think prices will have to soften because affordability is starting to become a bit of an issue.” Real estate markets are traditionally steadier elsewhere in the GCC, driven by domestic buyers rather than expats and overseas investors. Nonetheless, prices are also rising in markets such as Bahrain, where the value of real estate transactions grew by 46 percent year-on-year in the fourth quarter on the back of expanding economic growth, according to consultancy Savills. In Saudi Arabia, where the average price per square foot is typically higher for newly built stock than for resale property, average apartment prices increased by 12 percent in the year to Q4 2021, said CBRE. Supply in the kingdom’s office segment remains constrained, contributing to a 9.8 percent increase in grade A office rents in 2021. 3 After the pandemic Although most coronavirus lockdowns have ended, remote working is here to stay and that is influencing the type of property people wish to buy. Buyers are looking for more space, after spending months cooped up in tiny flats with no outdoor amenities. They want home offices and separation between rooms too, rather than the open-plan living of recent years. Dubai’s property market reflects this, with demand for villas outpacing apartments. According to CBRE, average villa prices rose by 21 percent in the year to February compared to 9.1 percent for apartments. Some government measures introduced to support the property market during the pandemic, such as the UAE’s 5 percentage-point increase in loan-to-value ratio for mortgage lending, have remained in place, further driving demand. 4 Population growth GCC populations are growing rapidly and becoming older and more international as oil diversification measures bear fruit and economic migrants arrive. The real estate stock being released is increasingly differentiated as a result, with developers seeking to tap into all corners of a maturing market. “The UAE, for example, has progressed from being a transient place to which expats moved for a couple of years and then left, to somewhere people want to stay for a large part of their lives,” says CBRE’s Khan. In general, the GCC’s popularity is on the rise, he adds, and many investors view it as a safe haven for property with legislation more akin to established global markets than elsewhere in the Middle East. 5 The war in Ukraine Russia’s invasion of Ukraine is likely to have an indirect impact on Gulf property markets – it is less about changes to Russian-led buying and selling of real estate in the region and more about macroeconomic repercussions, such as the effect of the war on oil prices. Ukraine war to hit Central Asia hard, oil cushions Middle East Oil prices were rising before the Ukraine crisis and curbs on production were declining. However, the increases seen this year will further boost the oil exporting economies of the GCC with a knock-on impact on property markets.