Tangible signs of UAE recovery by 'end of the year'

The first tangible signs of economic recovery in the UAE will be witnessed towards the end of the year and the current positive indicators of recovering markets, high oil prices and reports of a possible bottoming out should be met with caution, say economists and industry leaders.
With local markets on the upswing, oil floating in the high $60s and the real estate market witnessing few sales, public perception that the economy may have seen the worst of this global recession is premature, they said.

The full effects of several measures governments and central banks have taken to mitigate the crisis are yet to be seen and felt, meaning uncertain times remain.

"I see the UAE economy bottoming by the end of 2009 with weak recovery thereafter in L-shaped scenario not 'U' or 'V'-shaped," Dr Eckart Woertz, Programme Manager, Economics, at the Gulf Research Centre, told Sole Business.

"In my view, the gross domestic product (GDP) will be between zero and one per cent for 2009.
"The global situation is slightly improving but it's still too early to tell. We might see some hiccups going forward," said Woertz.

"The global economy, which plays a major role in how our economy performs, could face massive inflation due to the ongoing monetary expansion or prolonged recession without it. So either way we are facing tough times. One must understand that this is a serious structural crisis. The economists who feel this is just a cyclical crisis are not on the right track, and all this talk of green shoots is premature," said Woertz.

The bottoming out of the real estate market after widespread distressed selling would be the key catalyst to the economy's upswing, he added.

In a report released this week, HSBC said: "The distressed stock is gradually clearing due to renewed interest as well as some sellers re-pricing, pulling their properties off the market, or putting them up for lease."

HSBC indicated the real estate market in the UAE was beginning to bottom out as prices stabilised, but warned that values could still fall further as more property comes onto the market.

Andrew Chambers, Managing Director of Asteco, however, put aside the notion of the current market reaching its bottom. "We will see the bottom and then recover in the last quarter of this year because the summer is traditionally slow even in a booming market," he said.

"The last quarter is the real deal because by then we should see a lot more mortgages and loans happening. Very few have qualified for mortgages today. It will never get back to last year's level, but the market needs more loans given, and the loan to value ratio still needs to improve," said Chambers, pictured right.

Property firm Asteco has begun recording single digit sales over the past few weeks, which, though pale in comparison to the two dozen weekly sales the firm recorded last year, is a sign of slight movement.

"In the last six weeks we started to see people putting offers on property because they believe the market is at its bottom," said Chambers.

"We have seen more interest now. People are accepting current prices as fair value. But there have only been a few sales. This is obviously better than March this year, when nothing sold. So the handful of sales we are recording now is still a better situation.

Current Asteco data for Dubai shows increasing offers for villas on The Palm Jumeirah, studios and one-bedroom apartments in Discovery Gardens and completed units at Dubai Marina.
The H?SBC report states agreed prices in the UAE rose four per cent month-on-month in April and five per cent in May, but were still 23 per cent down from its peak in September 2008.
Advertised prices in Dubai rose three per cent month-on-month in April and fell one per cent in May, while prices in Abu Dhabi were up two per cent and seven per cent for both months respectively.

Residential real estate prices in Dubai fell an average 41 per cent in the first three months of the year, according to data from property consultants Colliers.

Average prices for apartments in Abu Dhabi have fallen by 10 per cent since the end of the first quarter, while villa prices remained stable, property consultancy Landmark Advisory said earlier this week.

"In the UAE, the real estate situation still has its problems, especially now as summer time is approaching. Since it plays a crucial role in the country's economy, no recovery is possible without real estate healing first," said Dr Woertz.

Oil prices, another crucial factor to economic growth in the region, played favourably this week, peaking above $69 (Dh253) this week, before returning to $66.92 yesterday.
Citing reasons for rising oil prices, Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc said: "This is all about recovery expectations. It looks like manufacturing is recovering in a number of countries, which is feeding into the belief that the worst is behind us. It doesn't hurt that the dollar is at the lowest level of the year."

"We're certainly on our way to $70, if not $75," said Stephen Schork, President of Schork Group. "That seems to be the number everyone is talking about. Given the technical momentum in this market, you cannot bet against it and step in front of this train."

Woertz said: "The current oil prices are helpful for the UAE economy. In my opinion, the prices are right and pretty well calculated because of tight supply scenarios going forward. So even in these recessionary times, it can perform well."

Meanwhile, annual inflation in the UAE slowed to 1.9 per cent in April and prices dropped between January and April led by the housing price slump. Inflation rates have decelerated quickly in the second-largest Arab economy since hitting a 20-year peak of 12.3 per cent in 2008, Ministry of Economy data showed.

"This gives us a good sense that for the year as a whole you could have deflation, and it is being driven by a sharp fall in rents," said Giyas Gokkent, chief economist at National Bank of Abu Dhabi.

"Rental increases have been the key driver of inflation in the UAE," said Monica Malik, regional economist at EFG-Hermes, which expects rental prices to fall between 20 and 50 per cent this year compared with a rise of 21 per cent in 2008.

The Ministry's data stayed true to the International Monetary Fund's (IMF) April forecast that the UAE would record one of the lowest inflation rates in the GCC at around two per cent.
IMF figures in its World Economic Outlook showed the combined inflation rate of the Middle East oil exporters would recede to around 8.8 per cent in 2009 from 10.3 per cent in 2008. "For the region as a whole, inflation pressures are projected to subside quickly, owing to lower commodity prices, rents, and economic activity," the IMF said. (With input from agencies)

Global property prices: why sellers are still asking too much

The worldwide impact of the property crash is far from uniform, according to a global survey of house prices over the past year.
The latest Global House Price Index from agents Knight Frank (KF) dents the idea that all nations are suffering equally at the mercy of global recession.

Covering 46 countries, it found home prices rising or falling within a margin of five per cent in 25 of them.

The KF table reveals strong house-price rises over the past year in Israel (up 10.9 per cent), Czech Republic (9.9 per cent), the British Channel island of Jersey (6.9 per cent) and Switzerland (5.6 per cent).

Prices in India climbed by 5.1 per cent, with Austria (4.1 per cent), Russia (3.6 per cent) and Belgium (2.7 per cent) all performing creditably last year.

By contrast, the biggest drops were in Latvia (36 per cent), Singapore (23.8 per cent) and the USA (16.5 per cent). The UK was the fifth-heaviest house price faller, down 16.5 per cent over the year, and by 4.5 per cent in the first quarter of 2009.

Faring marginally better than Britain during the past year were Denmark (-11.6 per cent), Ireland (-10 per cent) and Norway (-9.4 per cent).

France, despite a 5.7 per cent annual drop, actually rallied to gain 0.1 per cent in the last quarter. Spain, down 6.8 per cent in a year, fell three per cent in the first quarter of 2009.
Although the speed of the price fall varies from country to country, KF fears the situation will get worse in most places before they get better.

It is particularly alarmed by the prospect of unemployment rates hitting double figures in many countries by late 2010, for the first time since the early 1990s.

Nick Barnes, head of KF's international research, said: "The worst and most widespread economic recession since the 1930s continues to batter housing markets across the globe.

"The world's housing markets remain under intense pressure with little evidence of any of the hoped-for 'green shoots', and even the improvement in performance shown in some countries in the last quarter may yet turn out to be a false dawn."

That belief was supported by Stuart Law of Assetz, a property investment and development company delivering carefully selected UK and overseas property projects as well as property funds.

"Dubai, in particular, is under pressure," Law said, "partly because it has many investors who tend to panic early, while the US is also unable to find a proper floor to property values.

"By contrast, the UK has seen falls of 15 to 20 per cent, and is now very close to the bottom. The problem in the UK is that investors are back in anger at the distressed end of the market, and not at price levels indicated by estate agents.

"Unless the distressed sector dries up, the real market is bound to remain weak – which means turnover cannot recover."

Many homeowners, unaware of the full impact of the property crash, are in danger of over-estimating the value of their bricks and mortar by £35,000 (Dh211,000) and more, said a new survey. It means they could come unstuck if they try to remortgage – unless they have paid more off their loan, they might need a higher LTV ratio on a new loan than lenders will allow.
Research from British lender Abbey Mortgages found that, on average, owners estimate the value of their homes to be worth £190,175. But official Land Registry figures put today's average house price at only £152,895 – representing a gap of more than £37,200.

Nici Audhlam-Gardiner, Abbey's Director of Mortgages, said the big danger is for homeowners who need a new mortgage deal at some stage in the future. As prices keep falling, owners who linger for too long on a Standard Variable Rate (SVR) loan, may be hit by tight loan-to-value (LTV) limits on their next loan.

Housing expert Henry Pryor said: "There has been a wide discrepancy for some time between the average Halifax house price achieved of £157,326 against latest figures from Rightmove showing the average asking price to be standing at £227,441, down only 6.2 per cent on May 2008.

"It is clear that vendors decided to bump prices up, as the daffodils came out, and the green shoots of recovery came back into people's consideration, possibly a little prematurely."
Pryor points out that the 6.2 per cent fall in asking prices measured by Rightmove must be set against the actual fall in sale prices achieved in the past year of about 17 per cent. "It shows a big divergence between sellers's aspirations and reality," he said.

"Sellers are damned if they do and damned if they don't. Do they pitch a price realistically in the first place, or wait for one of those rare buyers to come along in a position to proceed, who is almost certain to pitch an offer well below the asking price.

"Most vendors obviously prefer to start with a high price, and come down to convince the buyer that they have landed a bargain. Agents may be so desperate for business that they deliberately over-value to get homes onto their books."

Pryor said 67,800 homes went on sale for the first time during April, against 150,500 in April last year.

The volume of house sales, which averaged 3,839 per day over the past eight years, fell to 2,967 in April 2008 and to 1,933 in April 2009.

Increasing activity suggests Dubai realty market recovery by late 2010

Dubai's real estate sector is expected to recover by late 2010 with emerging signs of increased activity, industry sources said yesterday.
"In Dubai, we expect a recovery to happen in 2010, although it will not be a sharp one. The real estate market will be a far more matured with competitive mortgage rates and good amount of affordable housing in place by 2010," said David Macadam, Director Sales and Leasing, Better Homes.

According to Elaine Jones, CEO of Asteco, a real estate and property management company, cash and confidence are the two elements needed to bring confidence back into the real estate market in the emirate.

"The recent announcement of the issuance of a six-month visa to property purchasers is a very short notice for buyers to stay in the market. It should be for a longer time. One cannot do much without a visa in this city. One cannot apply for Dubai Electricity and Water Authority facilities and there is no point in selling a property if you cannot have people live in it," she said.

Steven Henderson, Partner at law firm Clifford Chance, said: "The next few months will be very quiet with little real estate activity in Dubai. However, by the end of this year we could see a number of consolidations of developer companies through mergers and acquisitions. Recovery can be expected towards the third quarter of 2010."

Speaking on the sidelines of the Cityscape Connect Business Breakfast Dubai, Henderson said the law in Dubai would need to catch up with the progress of the real estate market. "In the past six to seven months, the Real Estate Regulatory Agency has been proactive and introduced a number of regulations into the market. The Strata Law will help to bring back confidence into the market," he added.

Sunil P Gomes, Chief Guru, Guru Real Estate, said the real estate sector has witnessed a dramatic growth in the past two years.

"Today master developers and developers are looking seriously at their feasibility studies. Dubai has been and still is an emerging market with developers making a return of about 16 to 17 per cent on their investments. While earlier they were making about 40 per cent return, now they have to be more realistic," he said.

According to Better Homes, Dubai is set to witness 29,000 new residential units to be added onto the property market.

Macadam said the company has recorded an increased number of new lease transactions for Dubai.

"In May we recorded about 400 lease transactions, in February the number was about 208, in March we recorded 308 transactions and in April these totalled 323 transactions.

"A third of those people are coming as new entrants from the United Kingdom, Western Europe and North America. They are mostly in the mid-managerial level and they are coming now because the salaries in the market today are at a certain level that is not too high or too low," said Macadam.

Dubai property market starts its comeback

Property prices in Dubai are bottoming out with initial signs of confidence returning to the market, new research said yesterday.

"Distressed stock is gradually clearing, with further signs of consolidation as volumes continue to pick up. Also, more recently, mortgage providers have moved to ease their requirements, raising loan-to-value (LTV) and relaxing credit norms, which we view as a further sign of some normalcy returning to the market," HSBC said in its "Property Ladder" report.

According to the bank, the May transaction survey suggests that the market is starting to bottom out, with agreed prices up four per cent and five per cent month-on-month (m-o-m) in April and May, respectively.

"On the ground market testing confirms that the distressed stock is gradually clearing due to renewed interest as well as some sellers repricing, pulling their properties off the market, or putting them up for lease. Sentiment seems to be improving and sellers are now less willing to negotiate. Anecdotal evidence also suggests that foreign investors seem to be back in the market and there are bulk buyers of property for investment purposes."

Besides, most of this year's transactions have been conducted in cash, but mortgage purchases are starting to pick up following the recent change in policy by lenders. Apparently, Standard Chartered and RAKBank are leading the way, the report said.

While agreed prices are now down 23 per cent from the September 2008 peak, "we believe that it is important to compare agreed prices to advertised prices in order to fully understand the extent of the downturn". According to the report, prices are down 65 per cent from the peak asking prices to the agreed prices.

David Lepper, Head of UAE Equity Research, HSBC Global Research, said: "Market data from April and May show a range of positive indicators: agreed property sale prices are rising, volumes are holding up well, and banks have loosened their lending criteria. However, we will not be able to discern a sustainable trend until later in 2009, and while we note these positive developments, the market as a whole is coming off a very low base, given the sharp declines since the market peak. Credit growth remains subdued, and the UAE economy still has challenges to deal with."

While apartment prices (which account for 85 per cent of transactions) have started to turn around, up nine per cent in May 2009, villa prices continue to come under pressure, down 11 per cent m-o-m. Villa agreed prices have now fallen 49 per cent since the September 2008 peak, compared to only 16 per cent for apartments.

The steeper decline in villa pricing is partly due to a sharper upturn last year, but is also a result of affordability, in light of lower mortgage LTV. "Transaction prices could be understated as buyers could potentially understate the value of their property in order to reduce registration fees. That said, however, the discrepancy is unlikely to be large, since properties with suspiciously low values are typically investigated by the regulator. This means that actual prices should be somewhere in between asking and agreed, which are now starting to converge," HSBC said.

However, there are still potential risks. With the summer approaching, volumes are likely to soften leading to short-term price volatility. The school year coming to an end in June, and more supply coming on the market could lead to renewed weakness.

According to the report, construction costs are likely to come down further although the building materials price index points to a 20 to 30 per cent price drop from the July 2008. "We believe that construction costs are likely to continue to trend downwards," HSBC said.

YIELD COMPRESSION

Yield compression is now apparent as rentals continue to slide (down 41 per cent year-to-date), while prices start to stabilise. Rental yields are down from seven per cent in March to 5.9 per cent in May. However, yields on asking prices are higher, upwards of 10 per cent in May.
Rental yields initially expanded, as prices were first to get hit by tightening credit conditions. Rentals, on the other hand, were only impacted after the first lay-offs. "Considering that rentals are a pure reflection of demand/supply dynamics, we believe they are likely to see further weakness as more stock comes on to the market."

According to HSBC, the May survey of advertised listings shows initial signs of stabilisation as transaction prices lead advertised aspirations. While down 18 per cent m-o-m in March, advertised prices in Dubai were up three per cent in April and down one per cent in May. The advertised data highlights no m-o-m change in apartment prices in May, but a three per cent m-o-m decline in villa prices.

Dubai advertised listings saw a gradual decline over the past two months despite more stock being delivered, falling 11 per cent from 5,782 in March to 5,173 in May.

"We believe this adds further credence to our analysis and shows that stock is clearing and/or listings are being pulled off the market. In any case, this is supportive of pricing. Also the shift in mix towards lease listings persisted in May 2009, increasing to 15 per cent, the highest level since we started our survey in September 2008."

ABU DHABI

Advertised prices in the capital are also showing signs of stabilisation, up two per cent and seven per cent, in April and May, respectively. Villa prices underperformed apartments, declining by four per cent m-o-m in May, while apartment prices rose eight per cent m-o-m. The bank believes this has to do more with lower affordability due to tightening liquidity than preference, said HSBC.

QUALITY UNITS IN FOCUS

In Abu Dhabi and Dubai, buyers and tenants are showing renewed willingness to pay for better units and better locations, a report by Sole Dubai said yesterday. "Even if decline patterns differ between Dubai and Abu Dhabi, falling prices are creating opportunities that boost demand in both markets. In April, we observed strong leasing and higher sales volumes," said Trevor Bondoro, Director of Sole Real Estate in the Q2-2009 real estate report on Abu Dhabi and Dubai.
"Since mortgage activity is low, cash buys constitute a significant portion of transactions. Therefore, to accurately assess price trends, it's critical to have access to data sets containing both transaction types. In Dubai, Emaar is faring best in terms of demand and pricing," he added. Bondoro said with a flight to quality clearly under way, end-user preferences are differentiating prices in favour of developers such as Emaar and preferred locations such as Dubai Marina. In the Q1 of 2009, Emaar master developments accounted for approximately two-thirds of sales and 57 per cent of new leases. "More specifically, units developed directly by Emaar represented over half of sales and 39 per cent of new rentals." Dubai Marina was the most popular area among renters, capturing 30 per cent of all new annual leasing contracts. Emirates Living came in second, at 16 per cent.

As for Abu Dhabi, "the issue of first-phase master development integration will leave certain Abu Dhabi developers more vulnerable in the short to medium term," said Bondoro. Sole Dubai's analysis shows a positive correlation between price performance and proximity to central Abu Dhabi