Covid-19 impact: Tight supply cycle to help subdue steep rents in GCC

An anticipated tight supply of real estate units across the Gulf Cooperation Council (GCC) following a temporary halt on new projects by some leading developers and fewer upcoming projects would help arrest the ongoing steep declines of prices and rents next year, Kamco Invest said on Sunday.

The novel coronavirus disease (Covid-19) has caused additional headwinds for end-user demand in the GCC’s residential real estate segment this year, driving rents and prices lower on a year-on-year (y-o-y) basis, despite limited supply addition and several government initiatives for home ownership being rolled out, Kamco said in a research report.

Analysts expect a temporary freeze on new projects initiated by developers would help reduce the supply glut and rebalance the market next year, leading to a slower pace of fall in both rents and prices.

In Dubai, a committee for real estate was formed last year to ensure that semi-government property companies did not compete with the private sector and to help rebalance the market, where concerns of oversupply have pushed prices lower in recent years.

Several government related entities have decided to stop new developments almost a year ago, but Covid-19 put the brakes on.

Emaar, Dubai's largest developer, said recently that it was temporarily halting new projects amid a property glut that, coupled with the Covid-19 pandemic, has shaved nearly a third off house prices in the past six years.

Damac Properties had also announced a temporary halt in new property launches.

Rents in all residential markets were under pressure this year, as tenants continued to downsize, migrate to more affordable residences, or looked for more incentives in their existing tenancy contracts, said the report.

“Covid-19 has caused additional headwinds for end-user demand in GCC’s residential real estate segment, driving rents and prices lower on a y-o-y basis this year, despite limited supply addition and several government initiatives for home ownership being rolled out,” it said.

The decline in rents was higher than the fall in prices during this year, as some sellers preferred to defer the sales of residential apartments and villas in order to achieve higher prices in the future.

Led by Kuwait with the steepest residential rental fall of 15 per cent, Dubai recorded 13 per cent, while Abu Dhabi saw rents dropping by 7 per cent y-o-y.