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Real estate prices may have bottomed in GCC

2 Aug 2021 By GULAM ALI KHAN

Residential real estate prices in the GCC countries may have bottomed and total value of transactions for the year 2021 is on course to eclipse 2019 levels, Kuwait-based Kamco Investment said in a report on Monday.

Total value of real estate transactions in the GCC in the first half of 2021 reached US$64.9bn and have approached within 26 per cent and 32 per cent of the full year figures of 2020 (US$90.5bn) and 2019 (US$96.5bn), respectively.

‘The higher transaction activity year-on-year in the first half of 2021 was largely due to opportunistic buying of bargain-priced properties, as property prices reached multi-year lows from the impact of COVID-19 in early 2020,’ the report said.

Moreover, it said, a higher average value per transaction was achieved in the first half of 2021 for key markets, when compared to pre-pandemic levels of the first half of 2019, pointing towards the investment appetite for attractively priced real estate.

‘While our view on the residential real estate market in the GCC has become more constructive than from our previous update (December 2020), we still require rents to move towards a late-stage recovery phase in the cycle, before establishing the segment as the clear leader amongst real estate segments,’ Kamco Investment said.

It said Saudi Arabia contributed to over 44 per cent of the aggregate value transacted in the GCC real estate market, while the UAE added 26 per cent to the region’s first half 2021 transactions.

Total number of transactions in the first six months of 2021 reached to 321,936 from 568,586 for the full year 2020, according to Kamco Investment.

Real estate equity indices in all the GCC markets barring Qatar witnessed strong double-digit percentage gains in the first half of 2021. The Refinitiv GCC Real Estate Total Return Index gained 22 per cent, while the MSCI GCC Index moved up by 22.6 per cent over the same period.

‘At the current market levels, we believe that GCC real estate equities prices are not just pricing in a cyclical recovery from COVID-19, but a more broader structural rebound. Real estate rents and prices in all sub-segments remain in different stages of recovery, and would need significant growth in fundamental performance indicators from here on to warrant a further re-rating in the stock prices of developers and real estate investment trusts,’ the report said.

For markets such as Dubai and Saudi Arabia, transactions in the first half of 2021 surpassed both first half 2020 and normalized first half 2019 figures.

Recovery for Saudi Arabia’s real estate prices was driven by government support mainly, in the form of mortgage financing and housing initiatives to support the Vision 2030 objective of increasing the home ownership rate to 70 per cent by 2030, Kamco Investment said. 

‘Moreover, government initiatives such as new visa schemes in Dubai, and initiatives to increase home ownership such as witnessed in Saudi Arabia, should support the residential segment in the region going forward.’ 

A rebound in off-plan residential transactions and a pick-up in core-plus and core commercial properties could signal the confirmation beginning of the next real estate cycle, before which rents would need to stabilize and recover in all real estate segments, the report added.

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