Out of the shadow: The UAE real estate sector displays signs of recovery - Deloitte
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Deloitte | A Middle East Point of View - Summer 2021 | UAE Real Estate
Out of the shadow:
The UAE real estate
sector displays signs
of recovery
The UAE real estate industry was one of the worst affected sectors
during the 2009 global economic slowdown. Pre-pandemic, the
industry had matured and sector experts expected the real
estate sector to stabilize in anticipation of Expo 2020. However,
the arrival of the pandemic has since taken a toll on the recovery
of the sector, with mandatory lockdowns across the globe and
movement restrictions that led to a further strain on the industry.
With the world slowly opening up, the sector is now showing signs
of recovery.
06
Deloitte | A Middle East Point of View - Summer 2021 | UAE Real Estate
07Deloitte | A Middle East Point of View - Summer 2021 | UAE Real Estate
Major real estate groups
T
he global outbreak of the Expo 2020 has been pushed to 1 October
COVID-19 virus has had a lasting 2021, yet despite the delay, is anticipated
had already announced and far-reaching paralyzing impact to boost confidence and regain investors’
relief packages in 2020 on economies across the world due to trust in the coming years, further leading
movement restrictions that have changed to a rise in economic growth supported
across their business the way we live, work, learn and socialize. by a growth in the real estate sector.
segments that included
In the UAE, the economy has experienced In light of the pandemic, the Central Bank
rent reliefs, deferred uncertainty within its main drivers in of the UAE (CBUAE) had rolled out the
payment plans, waivers the non-oil industry, with the travel, following till date, in support of the UAE
hospitality, retail, and real estate sectors economy and financial system:
of administrative having been hit particularly hard. Dubai’s
charges to support their
customers and business
partners.
In response to the The Targeted The TESS has been
Covid-19 pandemic, Economic Support among the most
the CBUAE adopted an Scheme (TESS) comprehensive support
AED 256 billion succeeded in programmes
stimulus package to enhancing the implemented by the
support the UAE capacity of the central banks
economy and financial system to regionally and
financial system. support individuals internationally.
and corporations.
IFRS 9 guidance and Zero funding facility
prudential filters
Postponement of Payment of defferal
Basel III implementation relief on outstanding
loans
Targeted Economic
Support Scheme (TESS)
Loan to Value ratio Reduction of service
increase for first time requirements and
home buyers capital buffer relief
Waiver of CBUAE Stable funding relief and
processing fees in other measures under
payment systems CBUAE TESS
08Deloitte | A Middle East Point of View - Summer 2021 | UAE Real Estate
Major real estate groups had already 1. New visa initiatives 3. Expo 2020
announced relief packages in 2020 The UAE, and Dubai specifically, is a The pandemic has halted all major
across their business segments that melting pot of different cultures with events across the globe, but the focus of
included rent reliefs, deferred payment expatriates forming an estimated 89 attention is on the upcoming Expo 2020.
plans, waivers of administrative charges percent1 of the population, which is a key The Expo theme is “Connecting Minds,
to support their customers and business attribute to determining the property Creating the Future”, which recognizes
partners, as detailed below. demand in the country. The government that generating sustainable solutions to
global problems demands collaboration
Real estate sector relief package across cultures and regions while the
subthemes of opportunity, mobility, and
sustainability define the principal drivers
Relief package details: of progress. Expo 2020 will create many
opportunities for the hospitality industry
Dubai Holding and Meraas Holding Group [1] USD 272 million as it is expected to attract more than 25
million visitors2 from across the globe
and will add impetus to the growth of
Nakheel PJSC [2] USD 63 million the real estate sector. Over the last two
years, construction has continued on
the Expo 2020 site that includes various
Aldar Properties [3] USD 116 million
government-led projects leading to
anticipation for investors to invest in the
real estate sector.
Source: Dubaiholding.com, Nakheel.com, Aldar.com
Major public and private developers
are currently focused on ensuring a
has rolled out various game-changing
visa initiatives that have created a
Major public and
faster execution of the ongoing projects positive impact on the demand for real private developers
to deliver the best quality product to estate, such as:
investors. Yet not all developers have the a. T en year-residency for expatriates; are currently focused
financial strength to face cash flow issues
varying from managing the working cash
b. Five-year renewable retirement visas
to retired residents and eligibility of
on ensuring a faster
flow to repayment on bank borrowings to foreign students to sponsor their execution of the
settlement to contractors. families meeting certain specific
conditions; and ongoing projects
With Expo 2020 pushed back, many real
estate groups are looking at their current
c. New self-sponsored remote work visa
enabling employees from all over the
to deliver the best
operating model by taking corrective world to live in, and work remotely quality product to
actions to overcome the short-term from, the UAE even if their companies
challenges, implementing the technology- are based in another country. investors.
driven business model, and focusing on
sustainable operations and long-term 2. Nationality for selected
opportunities. expatriates
Recently, the UAE Government has
Despite uncertainties and challenges approved amendments to the citizenship
faced by the real estate sector, it is set law, allowing investors, professionals,
to transition into a recovery phase and special talents, and their families to
below are some of the green shoots acquire Emirati nationality under certain
indicating a recovery. conditions. This historic decision aims to
boost the country’s economy in the long
run, reinforcing the leadership’s vision
to grow and attract talent. This should
further advance the increase in demand
for real estate.
09Deloitte | A Middle East Point of View - Summer 2021 | UAE Real Estate
4. Virtual real estate events 6. Changes in existing company laws
Despite large-scale exhibitions being To facilitate direct foreign ownership and
suspended, all the major organizers in investment in the UAE just before Expo
the field of real estate had to be agile 2020, the Government has removed
and learned to innovate. One such the long-standing requirement for
initiative is Cityscape Intelligence, an UAE companies to have one or more
online portal that allows investors to get Emirati shareholders holding at least 51
an overall knowledge of the real estate percent of the issued share capital of the
sector products. For 2021, Cityscape has company. This policy change will boost
introduced a hybrid model i.e. physical the economy and growth by attracting
event, live, and in-person, which is foreign investors.
planned to take place in early November
for three days at the Dubai Exhibition 7. Attractive offerings by lenders
Centre (DEC) within the Dubai Expo 2020 Lenders in the UAE have various offerings
site. This event will enable investors to to turn renters to become homeowners
identify investments suiting their interest such as increasing the loan to value ratio
and business needs, strengthening the by reducing the mortgage gap for first-
real estate sector. time investors, extremely competitive
interest rates on mortgages, and the
5. Vaccine roll out waiver of certain administrative fees.
Vaccination is the only ray of hope
to fight the pandemic. The UAE has 8. Other initiatives
effectively rolled out a vaccination The UAE government is also actively
campaign with a clear vision to vaccinate identifying several other measures to
the population in 2021. It has already create a positive and lasting impact on
achieved the target of vaccinating more the real estate market. Recent initiatives
than half of its population by March 2021. include:
The leadership’s vision with world-class a. A pproval by the executive council of
amenities such as world-class airport, the new ‘Dubai Building Code’ that
logistics, and storage facilities have outlines a set of construction rules
enabled the UAE to position itself as an promoting sustainable development
example across the globe whereas other and innovation in building design.
countries are struggling with vaccination It also aims to reduce construction
effects. The efforts of the government costs by streamlining building rules
authorities are already showing positive and requirements and to hasten the
results as there has been a reduction in completion of the design phase of
the number of daily infections and will construction projects to the highest
in turn uplift the real estate sector as international standards.
people go back to normal life. b. Reduction in fuel surcharge for
electricity and water announced by the
To facilitate direct foreign ownership and Dubai Supreme Council of Energy to all
district cooling companies supporting
investment in the UAE just before Expo 2020, property owners.
c. A new law governing the rental
the Government has removed the long- agreements in Dubai is expected to
be issued soon which would fix rents
standing requirement for UAE companies for three years. This change in law will
to have one or more Emirati shareholders assist the landlords to achieve stable
tenants and it will help them to avoid
holding at least 51 percent of the issued paying an annual increase in the rental
amount.
share capital of the company.
10Deloitte | A Middle East Point of View - Summer 2021 | UAE Real Estate
With all these indicators, the recovery
of the real estate sector across the UAE
in the transactional value. Offers from
lenders such as reduction in interest
The recovery of the
will be dependent on the confidence rate, coupled with lower, or waiver of, real estate sector
of potential investors. Data for the UAE mortgage fees and increase in loan-to-
in Q1 2021, particularly the Dubai real value for first-time buyers by 5 percent across the UAE will
estate market, already shows an upward
trend compared to Q1 2020 i.e. pre-Covid
for Emirati and expatriates has resulted
in an increased number of mortgage
be dependent on
and Q4 2020.3 transactions. Further, there has been the confidence of
a hike in the secondary market by 9
The chart below shows transactional percent and the month of February 2021 potential investors.
data and value over Q1 2021 and Q4 now holds the record for most secondary
2020. The overall number of transactions property sales transactions in a single
has increased by 6 percent quarter-on- month over the past three years.4
quarter with a corresponding increase
Dubai market performance (Q1 2021 vs Q4 2020)
14,000 70%
59%
11,661 60%
12,000
11,015 50%
No. of transactions
10,000 40%
8,415
Change (%)
7,695 30%
8,000
7,191
20%
6,066
6,000 5,595
9% 10%
6%
4,000 3,824 0%
3,246 3,320
-2% -10%
2,000
-20%
-22%
-30%
Total transactions Cash transactions Mortgage transactions Primary market Secondary market
Q1 2021 Q4 2020 % change (Q1 2021 vs Q4 2020)
Amount in billions
15%
Secondary market 17.43
20.08
7%
Primary market 4.49
4.79
13%
Total value 21.92
24.87
% change (Q1 2021 vs Q4 2020) Q4 2020 Q1 2021
Source: Dubai Land Department - Real estate transactions
11Deloitte | A Middle East Point of View - Summer 2021 | UAE Real Estate
Dubai market performance (Q1 2021 vs Q1 2020)
14,000 70% 80%
12,000 11,661
60%
10,087 49%
No. of transactions
10,000
40%
Change (%)
8,415
8,000
6,511 20%
16% 6,066 5,650
6,000 5,595
4,437
0%
4,000 3,576
3,246
-14% -20%
2,000
-27%
-40%
Total transactions Cash transactions Mortgage transactions Primary market Secondary market
Q1 2021 Q1 2020 % change (Q1 2021 vs Q1 2020)
Amount in billions
Despite the challenges
34%
17.43
faced by the hospitality
Secondary market
20.08
sector, asset owners of
the finest beachfront
-24%
Primary market 6.33
4.79
17%
properties have seen
Total value 21.28
24.87 an increase in the
average daily room
% change (Q1 2021 vs Q1 2020) Q1 2020 Q1 2021
rate.
Source: Dubai Land Department - Real estate transactions
As shown in the chart above, the overall The real estate sector also includes hotel increase in the average daily room rate
number of transactions in Q1 2021 has assets that are owned by corporates (ADR) despite a mixed trend of occupancy
increased by 16 percent compared with and family groups and that contribute in Q1 2021 compared with Q1 2020.
Q1 2020, with a corresponding increase significantly to investment in this sector. The graphs on the right depict the
in the transactional value by 17 percent. With the upcoming supply, the sector performance of selected premium
The trend in the second half of 2020 is facing pressure on the rates and beachfront properties in Dubai in terms
is of the secondary market transacting occupancy of hotels but is marching of ADR and occupancy.6
higher compared to the primary (off-plan) towards a slow and steady recovery.
market. Mortgage transactions have Despite the challenges faced by the
also seen a remarkable increase due to hospitality sector, asset owners of the
factors discussed earlier.5 finest beachfront properties have seen an
12Deloitte | A Middle East Point of View - Summer 2021 | UAE Real Estate
9,000
8,000
7,000
6,000
ADR (AED)
5,000
4,000
3,000
2,000
1,000
Property 1 Property 2 Property 3 Property 4 Property 5 Property 6 Property 7 Property 8 Property 9
Q1 2021 Average Daily Rate (ADR) Q1 2020 Average Daily Rate (ADR)
Source: STR Report
100.00
90.00
80.00
70.00
Occupancy (%)
60.00
50.00
40.00
30.00
20.00
10.00
0.00
Property 1 Property 2 Property 3 Property 4 Property 5 Property 6 Property 7 Property 8 Property 9
Q1 2021 Occupancy (%) Q1 2020 Occupancy (%)
Source: STR Report
Conclusion However, it is still early days. The true
Endnotes
While Covid-19 has shrouded the world potential of the government’s initiatives 1. Expatica.com
with uncertainty, the UAE’s handling and Expo 2020 on the real estate sector 2. G ulf news.com
of the pandemic and the various remains to be seen. 3. D ubai Land Department – Real estate
transactions
government initiatives are supporting
4. D ubai Land Department – Real estate
the growth and recovery of the country. By Faizan Ahmed, Director and Samina transactions
The real estate sector, specifically in Rangoonwala, Senior Manager, Audit & 5. D ubai Land Department – Real estate
Dubai, has shown astounding resilience Assurance, Deloitte Middle East transactions
6. S TR Report
in the first quarter of 2021 despite all the
challenges caused by the pandemic to
the economy and consumer spending
and has started bouncing back, which
manifests the potential of this sector.
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