The number of residential properties completed in Dubai last year was just 7,800 — considerably below the 25,000 units that had been forecasted by developers at the start of 2015, says JLL.
The property consultancy said in its annual UAE real estate market review that materialisation rates — ie the number of homes scheduled to be delivered that actually completed — has stood at just 30-50 per cent in recent years. As a result, it expects that much of the 26,000 units forecasted to be handed over this year will also not complete on time.
Sales of residential property across the UAE remained ‘subdued’ in 2015, JLL said, affected by the lower oil price, the strong dollar (to which the dirham is pegged) and geopolitical unrest.
It added that in the year to November, Dubai Land Department (DLD) figures showed that the volume of transactions fell by 33 per cent and the value by 28 per cent.
Citing ReidIn figures for November, it said that apartment sale prices in Dubai dropped by 13 per cent year-on-year, while villa prices fell by 11 per cent.
The lack of supply in Abu Dhabi – only 1,243 units were delivered in freehold investment areas last year, versus 1,600 in 2014 – meant that sale prices held up over the course of the year and remained flat in the 12 months to November. Rents increased by 3 per cent for apartments and 2 per cent for villas, compared to respective declines of 3 per cent for apartments and 4 per cent for villas in Dubai.
“Following a rapid increase of residential rents and prices between 2012 and 2014, the market has now clearly stabilised, with sales prices falling in Dubai and remaining stable in Abu Dhabi during 2015 — but with a significant decline in transaction volumes in both markets,” said Craig Plumb, head of research at JLL Mena.
“Prices softened by around 11 per cent in 2015 according to Rera in the Dubai residential market and are expected to decline further over the next six months.”
Estimates over supply figures became a hot topic last year, with Dubai-based developer Damac suggesting that over-optimistic supply pipeline predictions by consultancies were having “a detrimental effect on the generally positive sentiment in the market”.
The company’s managing director, Ziad El Chaar, said: “To suggest that Dubai is to be flooded with further housing is professional malpractice.”
However, JLL said that delays in project handovers were a result of lower sales, reduced government spending and a realisation among developers that they need to phase the completion of units in line with demand in a bid to avoid an oversupply. It said that many of the units that had been due to complete in 2015 have been pushed back to 2016 and 2017.
Earlier this week, the Dubai Land Department had claimed that real estate transaction values had increased by 8 per cent year-on-year to Dh267bn. However, JLL said that its assessment of the DLD’s figures were based purely on sales of buildings and units, and therefore stripped out land plots and mortgage transactions.
“This data shows sales declined in 2015 and we believe this is an accurate reflection of the market,” it added.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
