Real estate valuations in the UAE are justified
Despite popular belief that current real estate valuations in the UAE are expensive, such valuations are justified, according to analysts at UAE-based Al Mal Capital.
They say that the "significant regulatory and structural changes throughout the emirates offer more than sufficient justification for today's real estate valuations, considering the extremely low base valuations in the earlier part of the decade".
Over the past five years real estate valuations have seen a cumulative average appreciation of over 300 per cent. However, the introduction of freehold rights in specified areas of Dubai, population growth, a strong fundamental economic environment, a growing tourism and hospitality market and substantial consumer and mortgage loan expansion have all supported the rising real estate prices,
To support its assessment of the real estate market Al Mal has compared real estate values in the country against those in other leading world cities relative to per capita income (UAE is $35,100), excluding London, Moscow and New York. However, it has not adjusted for the per cent income tax regime in the UAE, which it believes, significantly impacts the affordability of real estate in the country.
On this basis the UAE is at the low end of the range for real estate prices compared with countries of similar income levels. Real estate prices in countries with per capita income of between $30,000 and $40,000 range between $3,595 square metres to $14,600 square metres. The prevailing value in the UAE is at the low end of the range of $4,066 square metres; the implied trend value for UAE residential real estate is roughly $7,200 square metres. France is at the upper end and Germany at the lower.
Al Mal notes too that average rental yields in the UAE, at 7.7 per cent, are also substantially higher than the levels in countries of similar income levels. It also points out these yields tend to decline as income levels improve, driven by the increased ability of the population to finance the purchase of real estate rather than rent.
Another finding is that rental costs are near the trend for their income category. "Though rental yields are high relative to global peers, rental costs are near relative fair value," the report states. UAE rent payments average $314 per square metres compared to $194 per square metres in Germany and $588 per square metres in France.
Within the sector, Al Mal identifies Union Properties, Emaar and Deyaar as the best opportunities for investors with 48 per cent, 43 per cent and 37 per cent upsides respectively, to its 12-month target prices. It also believes that Union Properties "should represent the best opportunity for investors over the next 12 months"; that "Emaar has been punished for past mistakes and should offer value going forward"; and that "Deyaar's growth potential is not reflected in the existing share price".
Al Mal's has published a number of reports links below:http://www.almalcapital.com/files/mo...
http://www.almalcapital.com/files/mo...
