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UAE’s residential construction market has been witnessing a slowdown over the past few years due to huge supply glut and intense competition. The demand-supply mismatch in the sector was further accelerated due to COVID-19 pandemic. Also, new housing construction by private developers in the UAE dropped during Q4’2020 due to financial constraints. Construction costs have escalated as building materials rose by about 25-30%.
Other factors that have impacted the housing market in the UAE especially in Dubai and Abu Dhabi include increase in property registration fees by Dubai Land Department to 4% vs 2%, impacting property demand. Also, the Federal Mortgage Cap which was introduced in 2013 impacted value appreciation of houses. In addition, 5% value added tax (VAT) implementation on home sales after three years of project´s completion also impacted the housing market.
Going forward, the residential sector is likely to record modest growth in 2021 with stable sale prices and rentals during the year. Though demand will be underpinned by economic recovery, new residential supply in Dubai and Abu Dhabi could challenge the overall performance of the sector.
To stimulate weakened demand, developers and government authorities have announced favorable payment options and various laws, respectively. As part of this, the UAE Central Bank has announced economic stimulus package, and loan-to-value ratios were increased by five percent for first time buyers for all property purchases, including off-plan property mortgages. Also, in 2019, other regulations such as the 10-year golden visa residency scheme to attract foreigners to settle in the UAE and freehold ownership of land to foreigners within specific investment areas in Abu Dhabi were announced to support growth in demand.
New launches in the housing sector may remain subdued in H1’21 as developers focus on clearing their existing inventory in the near-term. As the market sentiment improves, developers are likely to launch new projects in anticipation of Expo 2020 which will now be held in October 2021.
In particular, Dubai’s housing market has been witnessing a slowdown and the market is further expected to remain restrained over the next two years due to huge supply, intensified by low demand owing to the pandemic.
To bolster the residential sector going forward, several policies were implemented in Dubai in 2020. Some of them include Dubai Land Department’s fractional title deed scheme (August 2020) which allows investors to purchase quarter or a half of a hotel or serviced apartment; Dubai’s new remote working visa (October 2020); and the launch of a new retirement programme (September 2020) which provides resident expatriates and foreigners aged 55 and above to apply for a retirement visa. In the Dubai property market, the fractional title deed scheme was introduced to attract crowdfunding and help cut 4% sales transaction transfer fee.
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