The UAE real estate industry: The highs, the lows and the way forward

Originally published on Dec 21, 2020 | Emarat Al Youm

How real estate developers in the UAE are adapting to the upheaval that coronavirus has caused globally.

As the world prepared to usher in the new year, morale was high and people were optimistic about what was in store. Analysts and realtors worldwide were eagerly waiting for the opportunity to reap the benefits of the real estate industry, which started recovering following the downturn. Industry players were witnessing clear signs of greenshoot growth and recovery. In Dubai alone, transactions were rising with volumes up 41 per cent year-on-year (y-o-y) in February 2020.

Enter Covid-19. Seemingly overnight, key industry indicators and intricately derived predictions for the foreseeable future of region’s real estate sector were irrevocably altered and optimism waned.

The real estate industry was one of the first sectors to be hit, and hit hard by the pandemic, as well as key supporting industries such as tourism. Travel restrictions, in particular, have dealt a huge blow to the real estate industry, which relied heavily on foreign investment. With less and less people boarding planes to travel, the industry saw a massive dip in demand. Global summits and events have been low key, many arranged via video conference instead. The business world had to quickly adapt to the changes and more companies implemented the work-from-home model.

The real estate industry, like most other sectors, were forced to reassess their business plans for expansion across different segments, delaying and even postponing some projects.

Now it seems the UAE real estate industry is slowly reviving and industry analysts have slightly given more optimistic outlooks for Q4 compared to Q3. However, as the industry starts moving forward, it's important to look at how the industry has changed.  How can we navigate this new normal? What do we need to ensure that the real estate industry—which is an integral driver of economic growth—continues to steadily adapt, develop and grow in the era of Covid-19?

Real estate has been a key driver of economic growth during the past few decades in the region. Although it was arguably one of the worst affected sectors during the the 2009 global economic slowdown, with Dubai’s property market particularly hit, the industry has matured greatly in the last decade and was looking forward to more growth in anticipation of Expo 2020. 

General overview of real estate industry

The eruption and wide outbreak of Covid-19 has pushed a plethora of businesses to heavily rely on a temporary work from home model and has led individuals to alter their shopping and recreational/entertainment preferences and habits, and resort to utilising the e-commerce structure. So, what have been the ramifications of such this unforeseeable paradigm shift?

Although there is no substantial overbuild across real estate segments, it quickly became evident that the retail segment and commercial office spaces have been affected the most by structural shifts in demand due to the pandemic. For example, the combined transacted value in the most active real estate markets in the GCC— Saudi Arabia and Dubai — during the months of March 2020 and April 2020 fell by 47.3% y-o-y, while number of transactions dropped by 46% y-o-y over the same period. 

It is also worth noting that off-plan transactions have made up the majority of regional and global real estate transactions. For example, the Dubai market has seen a little over 20 per cent increase in recent months, growing from 30 per cent to 52 per cent. 

The performance of real estate equities continues to be directly linked with economic activity, and the near-term outlook for the sector would depend on the extent of time GCC economies take to adapt to and recover from the impact of the pandemic, and resume their full potential of business activity, which would, in turn, boost demand across real estate segments. 

Changing trends and habits

We are already seeing a shift in real estate trends, with more of an emphasis being placed on residential projects and industrial warehouses and less emphasis placed on the retail and commercial office segment.

As more people work from home, there is naturally less of a need for office space and people will be looking to upgrade their residences to accommodate a work space, perhaps. 

Also, with a heavier demand on online shopping due to social distancing and Covid-19 precautions, less people are going to stores to shop, instead preferring to shop from the safety and convenience of their homes. This means demand for industrial warehouses will go up, to house the merchandise and supplies. 

Additionally, governments are stocking up on basic supplies like medication and food to ensure stock if gaps emerge due to the pandemic’s effect on the market.

So, is now the time for us realtors to pull the brakes? 

I believe not. It is but an opportunity in disguise to re-imagine the future of our industry and become more agile, proactive, and conscious of the changing needs of our customers.

Building the Future 

Despite the challenges all sectors are facing, there is a light at the end of the tunnel. The real estate sector will continue to be a vital engine of growth here in the region. Although the environment has become less predictable, real estate companies can ensure success by reinforcing their core capabilities in asset management, becoming lean and agile to decide on and implement changes more rapidly.

Also, the quicker companies can adapt to the rapid digital transformation, the better, as digital is the way of the future. Going forward, it's important to understand the changing spending habits and needs of our customer base.

The real estate sector in the region is expected to start the recovery during the first quarter of 2021, but this can only be achieved if real estate companies focus on stabilising their businesses, with the help of the government to not only attract local players, be it investors, buyers or renters, but foreign investors as well. 

Dubai will continue to attract investment

Any investor looking at real estate in Dubai should do so knowing that Dubai is still one of the fastest-growing metropolitan cities not only here in the region, but in the world. This make it viable and profitable addition to an investor’s portfolio. The presence of highly competitive realtors in the market further adds to the overall appeal. If you are contemplating investing in Dubai then rest assured that the foundation stone to definitive financial gains has already been laid.  

Dubai has and continues to offer top-of-the-line luxury properties, that are not readily found in many other countries. Additionally, it offers a broad range of options suitable for any family size, as well as studios and apartments. With the help of expert realtors, one can easily find a suitable match for their budget, which will yield maximum returns.

While the future may seemingly appear bleak and grey, investing in real estate will help rebuild a more lucrative future for all parties involved.