Covid-19 impact: Tight supply cycle to help subdue steep rents in GCC

An anticipated tight supply of real estate units across the Gulf Cooperation Council (GCC) following a temporary halt on new projects by some leading developers and fewer upcoming projects would help arrest the ongoing steep declines of prices and rents next year, Kamco Invest said on Sunday.

The novel coronavirus disease (Covid-19) has caused additional headwinds for end-user demand in the GCC’s residential real estate segment this year, driving rents and prices lower on a year-on-year (y-o-y) basis, despite limited supply addition and several government initiatives for home ownership being rolled out, Kamco said in a research report.

Analysts expect a temporary freeze on new projects initiated by developers would help reduce the supply glut and rebalance the market next year, leading to a slower pace of fall in both rents and prices.

In Dubai, a committee for real estate was formed last year to ensure that semi-government property companies did not compete with the private sector and to help rebalance the market, where concerns of oversupply have pushed prices lower in recent years.

Several government related entities have decided to stop new developments almost a year ago, but Covid-19 put the brakes on.

Emaar, Dubai's largest developer, said recently that it was temporarily halting new projects amid a property glut that, coupled with the Covid-19 pandemic, has shaved nearly a third off house prices in the past six years.

Damac Properties had also announced a temporary halt in new property launches.

Rents in all residential markets were under pressure this year, as tenants continued to downsize, migrate to more affordable residences, or looked for more incentives in their existing tenancy contracts, said the report.

“Covid-19 has caused additional headwinds for end-user demand in GCC’s residential real estate segment, driving rents and prices lower on a y-o-y basis this year, despite limited supply addition and several government initiatives for home ownership being rolled out,” it said.

The decline in rents was higher than the fall in prices during this year, as some sellers preferred to defer the sales of residential apartments and villas in order to achieve higher prices in the future.

Led by Kuwait with the steepest residential rental fall of 15 per cent, Dubai recorded 13 per cent, while Abu Dhabi saw rents dropping by 7 per cent y-o-y.

“Looking ahead, the residential market is expected to remain under pressure until segment fundamentals such as the number of households, employment rates improve. Moreover, we expect developers to continue offering a range of incentives such as fee waivers, discounts and rent-to-own agreements, combined with home finance options to attract new investors looking to take advantage of the lower prices,” the report said.

Analysts at Kamco expect developers to continue offering a range of incentives such as fee waivers, discounts and rent-to-own agreements, combined with home finance options to attract new investors looking to take advantage of the lower prices.

According to Kamco, sale transactions in the GCC between January and October declined from a year ago, as total value transacted receded by 4 per cent y-o-y to $72.1 billion (Dh2,648.53 bn), from $75.5 bn (277.30 bn) in the same period last year.

Saudi Arabia contributed to over 52 per cent of the value transacted, while the UAE added 21.6 per cent to the region’s aggregate figure.

However, the average value per transaction in the GCC increased by 7.6 per cent y-o-y to around $166,105 (Dh610,087.05) from January to October from $154,365 (Dh566,967.21) in the corresponding period last year.

The number of GCC-wide transactions until October fell by around 11 per cent y-o-y to $434,158 (Dh1,594,618.92). The lower y-o-y transaction volumes and value transacted was largely due to the impact of Covid-19 on real estate demand and its various sub-segments.

“Moreover, the signs of a bottoming out of transactions witnessed in 2019 will now be more prolonged into 2021 in our view, until normalised demand conditions arrive in a post-Covid environment.”

— issacjohn@khaleejtimes.com