How real estate developers in the UAE are adapting to the upheaval that coronavirus has caused globally.
In the beginning of 2020, morale was high and people were optimistic about the future. 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 green shoot growth and recovery.
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 were 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 projects.
Despite all the challenges, Dubai’s real estate industry remained resilient. According to the Dubai Land Department, Dubai’s real estate transactions totalled Dh72.47 billion from 35,400 deals in 2020, with the months of November and December both setting seven-year highs for secondary or ready market sales.
The UAE real estate industry is continuing its revival and industry analysts have given a more optimistic outlook for 2021. However, as the industry starts moving forward, it’s important to look at how it 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 hard hit, the industry has matured greatly in the last decade and is now looking forward to more growth in anticipation of Expo 2020.
General overview of real estate industry
Covid-19 had pushed 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. As per data collated by Asteco, the commercial property market in Dubai saw sales prices drop by an average of -8.9% in 2020 with rents down -15.2% for the year.
The general sentiment towards real estate was also lower than the previous year, as a research report by Kamco Invest suggests. According to the report, sale transactions in the GCC from January-October 2020 declined from a year ago, as total value transacted receded by four per cent to $72.1 billion from $75.5 billion.
Saudi Arabia contributed to over 52 per cent of the value transacted, while the UAE added 21.6 per cent to the region’s aggregate figure. At the same time, the average value per transaction in the GCC increased by 7.6 per cent to around $166,105 from around $154,365 in the same period in 2019.
It is also worth noting that off-plan transactions have made up the majority of regional and global real estate transactions. Figures from the Dubai Land Department stated that off-plan properties accounted for 28% of total sales values and 41% of total transaction volumes in 2020.
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.
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.
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.