Year in review 2014: Rents rise, building restarts and people worry

2014 was the year when the UAE real estate market finally went from recovery mode to within a whisker of again overheating.

The year started with news that house prices in Dubai were growing the fastest in the world, helping to push up the global average to a new pre-crisis peak.

And it was not just the residential market. Dubai's hotel market was booming, retail rents were on the rise and even the city's beleaguered office market was showing signs of rent increases in some areas.

Agents warned that with house prices about to reach their 2008 pre-crisis peak levels, a correction could be looming if unsustainable growth continued.

Rents too were rising fast in Dubai, with annual rates in areas such as International City and Jumeirah Lakes Towers up 11 per cent during the first quarter of the year according to Asteco, pushing some residents to relocate to Sharjah and the Northern Emirates in search of cheaper rents.

The increase in demand prompted previously inactive developers to restart work on stalled schemes, or even to launch new ones.

Dubai's largest listed developer, Emaar Properties, started the year launching one project every week to cash in on booming demand, and it was joined by others including Dubai Properties, Damac, Nakheel and Tecom.

With developers offering many of the new off-plan properties with relaxed payment plans that often required deposits of just 20 per cent with the remainder due upon completion in three years’ time, agents were again warning of a real estate bubble.

By April the exuberance had spread to Abu Dhabi, where the developer Aldar announced its first new project launches since before the downturn at the emirate's Cityscape exhibition, cashing in on rising rents and prices.

Later in the year the tourism developer TDIC released a new phase of villas on Saadiyat Island in the capital, while JLL reported that for the first time in six years the stagnant Abu Dhabi office market was showing signs of rent rises (albeit prompted by the fact that half of Mubadala’s massive Sowwah Square office block had been taken off the market while the landlord waited for the city’s new financial free zone authority to decide on the new rules governing the area).

By the summer agents reported that Ajman was taking on the mantle as the relocation destination for budget-conscious residents because Sharjah was becoming too expensive.

But the warnings were growing that something had to give.

In August, amid slowing growth for rents and prices, and a steep decline in sales volumes, brokers started to warn that prices in Dubai could be starting to fall as mortgage caps, introduced by the Central Bank at the end of last year, started to bite.

“We are certainly seeing a softening in the market for villas over Dh5 million,” said Catherine Clarke, a director in residential valuations in Colliers’s Dubai office. “The mortgage cap has certainly hit those properties. You’re looking at a down payment of 35 per cent plus additional fees on transactions. I would anticipate a slight softening going into the future for this segment of the market. It’s too early to tell whether this means real price falls or not.”

Rents too were starting to fall, according to the experts, with CBRE reporting that after 10 consecutive quarters of growth, average residential rents fell 1 per cent in the third quarter.

The softening market did little to dent enthusiasm for Dubai’s Cityscape exhibition, at which the number of companies showcasing property increased by a quarter on the previous year, making it the largest for the past five years.

There were lots of big announcements too. Dubai Holdings announced that it would start construction of the long-awaited Mall of the World project by next March; Meydan said it would build a pilots’ village as part of the second phase of its Dh21bn Mohammed Bin Rashid City scheme; and Meraas unveiled plans for a 9.5 million-square-foot La Mer beachfront tourism development close to Palm Jumeirah.

And it wasn't just the top-end stuff. Developers such as Danube, Deyaar and Sharjah's Al Thuriah were busy showcasing less swanky homes aimed at those lower down the income chain.

In November the government of Sharjah announced it was opening its property market to foreign investment for the first time, granting expatriates the right to buy leases of up to 100 years in investment zones in the emirate as pressure for more affordable housing increased.

But as the year draws to a close affordability remains the key issue facing the UAE real estate market, with many expatriates looking closely at whether rising rents and prices still make it worth their while to remain in the country.

In Abu Dhabi, which in November 2013 revoked a rule limiting rent rises for existing tenants to 5 per cent a year, the pressure was especially keen.

“We’re getting concerned again about housing rents,” says William Neill, the director and head of Cluttons’s Abu Dhabi office. “The decision by the Abu Dhabi government to remove a 5 per cent cap on rents for existing tenants means that there is a danger that rents could start to rapidly rise again, making it very hard for ordinary people to afford to live here.”

lbarnard@thenational.ae

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