Real Estate Industry in the United Arab Emirates

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Table of Contents

Introduction
Market Structure
Risks
Conclusion
References

Introduction

It is imperative to note that the real estate industry in the United Arab Emirates (UAE) has been developing at rapid rates, and it is a crucial part of the economy. It has to deal with numerous issues that may complicate the processes and decisions of investors. It would be beneficial to analyze particular aspects of the industry to get a better understanding of how it functions and what approaches may be utilized to address current problems. One of the most significant aspects that should be highlighted is that the regulatory environment has improved, and it has helped to draw the attention of foreign investors.

Market Structure

The real estate market in the UAE consists of office, residential, retail, and hotel sectors. Enterprises have to spend funds on salaries, insurance, advertising, and other activities. Start-up expenses also may also be quite significant. The fact that construction costs in most regions are stable also should be mentioned (Colliers International, 2015). It would be beneficial to analyze core real estate indicators in the biggest cities in the UAE to get a better understanding of the situation on the market.

The office sector is worth highlighting because it has been affected by economic shifts. The growth of completed supply in Dubai has been steady, and it has increased from 1,02 percent to 1,09% from 2014 to 2015. On the other hand, the numbers in Abu Dhabi were 1,01% and 1,05% respectively. The demand for office space has remained at high levels, and an increase of four percent in Grade A rents could be noted in Dubai, and 7% in Abu Dhabi (JLL, 2016).

Residential supply is also quite important, and statistics suggest that productivity has been slowing down in both cities from 2014 to 2015, and it has grown only by 1,02% in Dubai and 1,004 in Abu Dhabi. Available data suggests that the value and amount of transactions were reduced by 33% and 28% in 2015 relative to 2014. The level of performance when it comes to rents has been much higher than sales in 2015. Prices are also worth noting, and one had to pay close to 16,000 AED for every square meter. Rental rates for similar two-room apartments have increased by four percent (JLL, 2016).

Retail supply also should not be overlooked, and numbers indicate that the sector has been steadily developing in the first city, and 3,107 sq m of gross leasable area (GLA) are available. On the other hand, the progress in the second one has slowed down from 1,2 percent to 1,07% and 2,741 GLA sq m can be utilized. Available data indicates that rents have remained stable, and most enterprises have used techniques such as discounts for businesses to stay profitable. The situation is not expected to change until 2017 when high-quality malls are completed, and low-quality ones will be pressured (JLL, 2016).

The hotel market also needs to be highlighted because it is one of the primary sources of profits thanks to tourists and expatriates. The growth that has been shown in Dubai from 2013 to 2014 is truly astounding, and 3,6 thousand rooms were completed. The progress has slowed down in 2015, and only a 1,04 percent increase has followed. The situation in Abu Dhabi is also intriguing because the sector has grown by 1,16% from 2012 to 213.

However, the number of finished rooms each year has been declining, and only a 1,05% increase was shown in 2015. One of the most important factors that should not be overlooked is that occupancy rates are healthy for the market and are 74% in Dubai and 77% in Abu Dhabi. However, the number of tourists that arrive each year has been lower, and the level of competitiveness has increased in 2015 compared to 2014 (JLL, 2016). Available data suggests that real estate and services related to business make up nearly nine percents of GDP, and it was 35,95 billion in 2014 (United Arab Emirates GDP Annual Growth Rate, 2016)

Risks

The biggest problem that the region has to deal with is that oil prices have collapsed, and it has reduced the ability of the governments to support the development of industries, and they may have to limit the amount of funds spent on the infrastructure. New taxes may be introduced to ensure that the government makes up for associated losses. Oil prices also may be quite problematic, and nearly all areas are affected by such tremendous changes (Kerr, 2015).

Companies will have to take necessary measures to stay profitable, and it may lead to unemployment, and the ability of the population to buy real estate may be reduced significantly (Maceda, 2016). Financial institutions are also showing signs of weakness. For instance, some of the banks had to deal with enormous debts, and the level of liquidity also has been hurt. Also, they are not allowed to allocate more than twenty percent of deposits to finance real estate according to current UAE regulations (Oxford Business Group, 2014).

Moreover, small and medium enterprises are not supported, and it leads to issues related to cash-flow (Cronin, 2016). The position of the dollar is also viewed as a significant threat, and overseas buyers have been hesitant most of the time.

ISIS should be regarded as a critical threat because the group is rather unpredictable and such issues may have an enormous impact on the decision-making process of investors. The region is also relatively unstable because of the level of tension between countries located nearby. The possibility of wars in Syria also should not be overlooked, and it may lead to severe consequences. The global situation also could affect the real estate industry, and recessions in some of the regions and trade disagreements play a vital role. The fact that some of the projects are delayed is a significant issue because of possible oversupply. Overall, some of these problems may be combined, and new ones can be introduced.

Conclusion

In conclusion, it is evident that several issues that may affect enterprises operating in this industry are present. The situation is quite complicated because some of the economic changes were not expected and are hard to predict, but most firms have managed to recover from the financial crisis and have shown outstanding results over the last few years. It is also necessary to mention that the demand for real estate is expected to grow in the coming years. For instance, it is already exceeding supply in some cases, and current stock cannot be viewed as sufficient. Understandably, the situation is complicated because of numerous internal and external factors. However, the industry has enormous potential that is not yet fully realized. The market is expected to expand if the situation stabilizes, and it is evident that the governments have recognized that it needs to support such activities for the economy to grow.

References

JLL. (2016). The UAE real estate market 2015: A year in review. Web.

Oxford Business Group. (2014). The report: Abu Dhabi 2014. London, UK: Oxford Business Group. Web.

United Arab Emirates GDP Annual Growth Rate. (2016). Web.

Colliers International. (2015). UAE construction costs benchmarking: 3rd quarter 2015. Web.

Kerr, S. (2015). Falling oil prices puts small UAE businesses at risk of default. Financial Times. Web.

Maceda, C. (2016). Small businesses in UAE push back hiring, expansion plans. Gulf News. Web.

Cronin, S. (2016). Regional cash-flow crisis looms, warn turnaround firms. The National. Web.

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Real Estate Industry in the United Arab Emirates

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