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MENA Housing Market Shows Signs of Recovery

However, the recovery of the market across the region will be dependent on the rate at which potential investors become confident that the market are close to bottom — and they are no longer faced with the prospect of further decline.

“A number of recovery signposts have emerged over the past three months and during the first quarter of 2009, more progress has been made and the signs of recovery are emerged,” Craig Plum, Head of Research at Jones Lang Lasalle MENA, told Khaleej Times.

He noted that the price decline now is increasingly being seen as a necessary requirement for the emergence of more mature and sustainable real estate market over the longer term.

He said that with prices falling significantly in recent months, more investors are beginning to see merit in re-entering the market.

This is reflected in the doubling of monthly sales transactions in Dubai over the past month (from $250 to $520 million). It must however be recognised that sales activity is volatile from month to month and that the number of transactions remains relatively low (at less than 400).

While vacancies remain minimal in Abu Dhabi, Riyadh and Jeddah, they have increased significantly in Dubai where vacancies now exceed 15 per cent, resulting in rents halving in some locations.

The significant reduction in the proposed future supply pipeline as projects around the region have been placed on hold or delayed is another important stimulant for investment.

The Dubai market saw a 50 per cent decline in the projected level of new supply due to enter the residential and commercial markets between 2009 and 2012 during the second half of last year.

This trend has continued over the first quarter of 2009 with developers either ceasing or slowing construction schedules to allow markets time to adjust to the new (lower) levels of demand. With construction costs continuing to fall, developers have the opportunity to renegotiate contracts with contractors who are increasingly keen to secure work.

The current market conditions create significant opportunities for equity only investors and those who still have access to debt finance.

Given the fall in prices now taking place, Dubai, offers a range of options for opportunistic investors.

Dubai is expected to see a flight to quality which will make the selection of high quality well-located assets with a stable long term income stream of paramount importance in sustaining value for investors.

The largest of the Gulf markets, Saudi Arabia offers an opportunity for developers to capitalise on the significant shortage in middle and low cost housing abounds.

The looming oversupply in the residential and office markets in Qatar, will however challenge the market in the short-term.

Bahrain is likely to see higher potential returns due to falling prices, lower construction costs and the availability of more distressed sellers in the face of increased oversupply in the luxury commercial and residential markets.

Kuwait with prices having fallen 40-50 per cent for land and up to 30 per cent for built product, increasing opportunities are emerging to acquire attractively priced assets from distressed sellers.

· aneela@khaleejtimes.com