The real estate sector across the Gulf Co-operation Council (GCC) market is making a slow recovery following the 2008 global financial crisis, when much of the region saw property prices crash, with Dubai and Abu Dhabi particularly affected.

The recovery has been uneven, however, an observation backed up by a September report from Roland Berger Strategy Consultants. According to the report, the recoveries in the United Arab Emirates and Qatar have been strongly driven by real estate speculation and have only recently shown signs of stabilisation. Saudi Arabia and Oman, where residential prices suffered less from the financial crisis, have seen prices stabilise and surpass pre-crisis levels.

Bahrain is still suffering from the effects of both the global financial crisis and political unrest, leading to an expectation that residential property prices will remain flat for some time. Kuwait, which largely missed out on the pre-crisis property boom, was only marginally affected by the downturn, and residential property prices in the country are also expected to rise, according to the report.

Mixed picture

Tobias Plate, a senior partner at Roland Berger Middle East and author of the report, says that markets across the GCC are becoming more diverse regarding their attractiveness to investors. Not only are there regional differences in terms of residential, commercial and office space, but there is also differentiation within the segments depending on location, quality of the building and related services. He says this is especially the case for more mature markets such as Dubai, where investors select their targets very carefully, taking into account the developer's experience and capabilities and the sustainability of the development.

Mr Plate adds that Saudi Arabia's property market was less severely impacted by the financial crisis due to genuine demand, swift countermeasures and government support. As such, residential sectors were only slightly affected before stabilising and surpassing the pre-crisis levels. For instance, government projects around affordable housing for low- and middle-income segments of the population and the introduction of a new mortgage law has fuelled both supply and demand in this particular sector, which has previously been underdeveloped, he says.

Qatar’s hosting of the FIFA 2022 World Cup is also expected to have some impact on the property market, but exactly how much is uncertain. “I think it is a little too early to tell how the [Qatari] property market will be effected by [hosting the World Cup], but the country's infrastructure development is gaining pace, which in turn is having a positive effect on the real estate sector,” says John Stevens, managing director at Dubai-headquartered real estate consultancy Asteco.

Dubai: the preferred destination

Dubai stands out as the GCC's preferred destination for property investors, especially international ones, says Nicholas Maclean, managing director of CBRE Middle East, a real estate advisory firm. Confidence and sentiment is rising on the back of the emirate's economic growth driven, in part, by its status as a 'safe-haven', a status that has proven valuable against the backdrop of the Arab Spring uprisings and their aftermath across much of the Middle East and north Africa. Mr Maclean says that there is strong demand for Dubai property from new investors from Syria and Egypt as well as the Asia-Pacific region.

Mr Stevens adds: “A significant number of buyers [in Dubai] in the second quarter of 2013 came from the [Indian] sub-continent, with other investors coming from areas that are still affected by the Arab Spring who consider Dubai to be a safe haven. Also, the EU economy is only showing signs of minimal growth, and the prospect of higher taxes in the future [in the region] is turning investor interest towards the Gulf states.”

According to Mr Stevens, rental growth in Dubai has also been impressive and shows no signs of levelling out. “Average apartment and villa rents grew by 7% and 6%, respectively, in the second quarter of 2013 compared with the first quarter, and have climbed a respective 20% and 17% over the past 12 months,” he says.

One of the most interesting aspects of Dubai's current real estate market is the demand for corporate regional headquarters, says Mr Maclean. For example, an inability to find suitable premises elsewhere led to Standard Chartered Bank commissioning new bespoke offices in Dubai, he points out, emphasising the difficulty multinational companies have in finding large, high-specification, contiguous office areas.

An imbalance 

While Dubai's residential market is on the upswing, Mr Maclean stresses that rental values are outstripping corporates' revenue and profit growth, potentially creating an affordability issue. "Salaries are not keeping up with rental growth," he says.

The current boom, however, is not a bubble, adds Mr Maclean, pointing to the differences in value between the unsustainable levels of 2007/08 and those today. A recently published Asteco report states that Dubai villa and apartment prices are still 42% lower than they were in the third quarter of 2008.

Officials are also putting in place a series of measures and a regulatory framework to avoid a repeat of the 2008 corrections, according to Mr Maclean. He points to initiatives such as the UAE central bank imposing a mortgage cap, the Dubai Urban Planning Framework being approved, and the consolidation of real estate players in Abu Dhabi (such as the merger of Aldar and Sohour), all of which should better regulate or tighten control on market conditions. 

Other sectors linked with Dubai’s property market are also improving, according to property consultant Jones Lang LaSalle. Its report for the second quarter of 2013 states that the emirate's retail market continued to improve and the hotel sector maintained its strong performance, supported by a growing number of tourist arrivals in Dubai. The industrial sector also continues to perform well. The report notes that demand is starting to shift to newer areas in the south of Dubai, which have well-developed infrastructure, good connectivity, and proximity to better quality products.

Promising future 

Looking ahead, it will be projects such as the potential hosting of Expo 2020 that will drive the direction of future developments. Although the possible impact of the emirate winning the Expo bid will remain unclear until the host venue is announced, a recent report by Standard Chartered Bank states that if Dubai were to win the bid, some 300,000 jobs could be created with 25 million people visiting Dubai. Ninety per cent of the job opportunities would arise between 2018 to 2021.

In the meantime, Dubai remains the hub for iconic real estate developments in the GCC region. The emirate is now home to the Change Initiative, which is the world’s most sustainable building; the Dh1bn ($300m) Cayan Tower, better known as the twisted tower, which was launched in June and at 75 storeys is the tallest twisted tower in the world; while Emaar Properties and Meraas Holding have announced a joint venture to develop Dubai Hills Estate, the first phase of Mohammed Bin Rashid City. On top of this, Dubai Sustainable City is expected to deliver its first batch of 100 villas and townhouses by 2014. 

Such property developments will keep Dubai in the headlines. Whether they lead to a more steady and sustainable path for its real estate sector remains to be seen.