Developers in the GCC will struggle to raise bank funding for new projects in 2016 as liquidity tightens across the region, according to JLL.
The consultancy highlighted the lack of bank funding as the main trend to impact on real estate markets across the UAE in 2016. Citing worsening bank results for the 2015 financial year where local banks reported increasing provisions against bank loans, JLL Mena’s head of research Craig Plumb said: “Banks are understandably becoming more cautious, it’s going to be more difficult to get lending [and] the terms are going to be tighter. We’re looking at an increasing interest rate environment – that’s not going to help.”
As well as tightening bank funding, Mr Plumb said that appetite among investors in bond markets and capital markets for property would be subdued.
“The international markets for both bonds and IPOs are relatively cautious at the moment. There’s been a lot of uncertainty. Bond investors are cautious, particularly towards the Middle East at the moment.
He added that 12 months ago, it had been aware of 30-plus companies in the region that had been looking to raise money on capital markets through an initial public offering (IPO).
“I think if we were to do the same thing now, that would be nearer to five than 30. We see some IPO activity, but perhaps not as much as was expected at the beginning of last year.”
As a result, he believes that there is potential either for formal PPPs or more informal partnerships between the private sector and government to fund projects, particularly in the affordable housing market.
Other trends the company is predicting is for developers to seek corporate clients who are willing to sign a long pre-lease for significant portions of buildings (build-to-suit), allowing clients more of a say in the construction of buildings and giving developers a secure revenue stream it can use for financing. It also sees more sale and leaseback buildings similar to those already completed by education firm Gems and hospital operator Medcare, allowing them to free up cash in estates.
It also predicts that the nature and pace of capital flowing out of the Middle East into real estate markets (mainly London and the US) to change. About $11bn was spent by Middle East investors last year, and this was largely through sovereign wealth funds. This figure is expected to slow, but a greater proportion of this investment is expected to come from family offices and private investors.
For Dubai, JLL is predicting a further decline in sale prices for residential units of about 5-10 per cent in 2016. Rents will also decline, but at a slower pace of 3-5 per cent.
In Abu Dhabi. Residential sales growth was flat in 2015, and the firm expects a slight decline in prices of about 5 per cent in 2016, mainly in off-prime locations. Rents in Abu Dhabi are likely to remain stable due to the lack of new supply.
David Dudley, head of JLL’s Abu Dhabi office, said: “Historically, Abu Dhabi completed about 10,000 units per annum. Last year, it was 1,000. This year, it will probably be 5-6,000. That will be some Emirati housing, and then individual schemes in masterplanned areas. Aabar are quite active on Rawdah. On Reem Island and Rawdah there are buildings coming through, but it’s limited.
It’s going to be a while until we’re back to 10,000. Aabar, TDIC, Aabar and Bloom – groups like that will be doing more, but it’s not going to be adding up to 10,000 per annum for quite some time.”