Transaction volumes rise amid real estate development in Sharjah

 

Located in the heart of one of the Middle East’s most vibrant real estate markets, Sharjah has begun to carve out its own distinct profile on the global property map. The emirate has committed to higher-end developments, while widening ownership structures. It has also grown both economically and demographically, now offering its own much larger internal market no longer so closely tied to developments elsewhere.

Recent months indicate that the market has overcome the economic lull that followed the budget tightening measures implemented across the region in the wake of the oil price drop. Transaction volumes have risen, with new builds reporting healthy interest and occupancy rates. A full project pipeline has observers watching how the market absorbs this extra capacity. However, an overactive schedule in the office and commercial real estate segments has caused some declines in occupancy, along with softening rents. Plans for an ambitious expansion of tourism in Sharjah are drawing focus to hospitality and retail, with the emirate to see major growth in the supply of both in the years ahead.

Market Evolution

While Sharjah’s population stood at just 79,000 in 1975, this had mushroomed to 1.4m at the time of the last full census in 2015. Some of this growth is down to the emirate’s strategic location. This makes it a natural transport corridor, providing a valuable east-west logistical link, while also linking the northern emirates with Dubai and Abu Dhabi.

Sharjah City, the emirate’s capital district, had a population of 1.27m in 2015, or 90.6% of the emirate’s total inhabitants. Sharjah contains eight other districts, with other major population centres including the Indian Ocean-side district of Khor Fakkan, which had a population of 39,100 back in 2015 (2.8% of the total), Kalba, with 37,500 (2.7%), and the district of Al Dhaid, which includes the city of Dibba Al Hisn, at 20,100 (1.4%). Recent years have seen strong population growth in the emirate, with the annual population change between 2010 and 2014 standing at 6.6%. The Sharjah Health Authority estimates that by 2025 the population will stand at around 2.7m. Other forecasts are more conservative, however, with real estate outfit Cluttons estimating annual population growth at 2.5%.

At the same time, Sharjah City is part of an extensive urban area that now stretches without much interruption from southern Dubai to Ras Al Kaimah, via Ajman and Umm Al Quwain. This places the emirate’s capital district within a conurbation of some 4m people, with good road connectivity between the north and south. Sharjah has thus long been the home for many who work in neighbouring emirates, particularly Dubai.

Resident Profiles

As in Dubai and Abu Dhabi, the overwhelming majority of Sharjah’s residents are expatriates on short-term contracts, who may renew or as is often the case, leave the emirate after a few years. The 2015 census found that some 88% of Sharjah’s population were from abroad. The fact that many of these are employed in traditionally male-dominated jobs, such as construction and manufacturing, gave a gender breakdown of 63% male and 37% female.

As the majority of residents tend to be temporary expatriates, many of whom work in low-income jobs and repatriate any of their surplus earnings, this has major implications for real estate. The residential market is traditionally divided between the local Emirati population, most of which live in villas in suburban districts, who also sometimes own accommodation for investment purposes that is then rented to expatriates. A third, smaller group are the higher-income expatriates, who, thanks to recent changes in the law, now have more opportunities to buy, rather than rent, their accommodation. Finally, there are investment buyers, both local and foreign, with these too now seeing a growing number of opportunities in the emirate, however, non-GCC buyers must have a valid UAE residency visa in order to purchase property.

Transactions on the Rise

The most recent statistics from the Sharjah Real Estate Registration Department (SRERD) show that the total value of real estate transactions in the emirate grew by 20.3% in 2017 to Dh29.8bn ($8.11bn) as compared to 2016 when the value stood at Dh24.7bn ($6.72bn). This coincided with the launch of a number of new projects in the emirate, such as the multi-purpose Aljada development in Sharjah City, complete with sports venues and residential spaces, and the commercial, residential and civil-infrastructure zoned Tilal City on the city’s outskirts (see analysis).

Though both emirates have seen a decrease in the cost of apartments, prices across the broader market have been relatively steady in recent years. “The general property market in Dubai and Sharjah has remained fairly stable since 2014 but there is a huge gap between the two emirates in terms of total transactions,” Al Khoshaibi told OBG. “The level of recent sales from local developers, and the significant disparity between Dubai and Sharjah, shows that there is huge growth potential, and that the issue for the Sharjah market was supply rather than demand.”

A key change to foreign ownership laws in 2014 removed a limit on the ownership of property rights in the emirate to UAE, GCC and Arab nationals, and companies fully owned by such persons. The rule states that other foreign nationals and their companies in the UAE are eligible to obtain usufruct licenses of up to 100 years for real estate in certain pre-approved areas of Sharjah. The system is managed by the SRERD and has been widely welcomed by investors and developers alike, although there is no right of resale under the scheme. However, given the large expatriate population, the rental market remains a key influence on the fortunes of the emirate’s real estate sector, with Sharjah City accounting for the vast majority of transactions.

Residential Rents

In 2017 residential rents in the city presented a mixed picture. Fourth-quarter villa rentals rose 1.7%, according to Cluttons, with the year overall registering 0.4% growth. However, in the same period apartment rentals fell by 13.6%, resulting in a 10.6% decline for the year overall. Similar decreases were noted elsewhere in the UAE and widely ascribed to economic slowdown and reductions in oil output.

Some of the popular areas of Sharjah City for rentals are Al Nahda, Muwaileh, Al Taawun, Al Majaz and Al Khan, with the last two of these seeing the most consistent declines in rental rates during 2017. There were also some stand outs bucking the trend, such as two-bedroom apartments in the Muwaileh and Al Taawuun districts, which saw 1.2% and 2% increases in average yearly rents, respectively, according to Bayut.com. Others saw rents hold largely steady, with one-bedroom flats in Al Nahda staying around Dh37,000 ($10,000) per year, while similar apartments in Muwaileh hovered at Dh30,000 ($8,170) per year.

Some developers, however, are optimistic regarding local real estate pricing. “Rental pricing for apartment accommodation in Sharjah is relatively stable, as regulations state that rental rates cannot be increased for three years after a contract is signed. This provides more stability and security for tenants,” Georges Khouzami, COO of Al Thuriah Group, told OBG.

Community Development

Community living is increasing in popularity in Sharjah within the current market. “We have seen a shift in demand as end-users are increasingly looking for well-designed community spaces that integrate different amenities such as parks, shopping areas and sports facilities within easy reach,” Ahmed Al Khoshaibi, CEO of development firm ARADA, told OBG. “Developers will need to spend more time on design to meet these changing expectations.”

Lifestyle is a concept tied to other real estate developments, such as malls, with projects like Al Zahia, on University City Road, achieving success, with five-bedroom villas, townhouses and garden apartments clustered in a series of neighbourhoods within the community. “The emirate is experiencing a transition with new concepts – particularly villa developments – being introduced to the market,” Nashat Sahawneh, chairman of Al Hamad Group of Companies, told OBG. The last of these units launched in early 2018 by Sharjah Holding, a partnership between Sharjah Asset Management Holding and Majid Al-Futtaim.

Sales Prices

In terms of residential purchases, apartment prices fell on average in 2017. According to Bayut.com, a two-bedroom apartment in Al Nadha averaged Dh580,000 ($158,000) during the year, down 6.4% on 2016, with more expensive areas, such as Al Majaz and Al Mamzar, seeing major slides in price – 12.6% and 15.8%, respectively.

The Muwaileh district, however, saw prices for two-bedroom flats rise by 7.6% to Dh954,000 ($260,000). With upper-end apartments increasing in popularity, potential buyers are able to demand more in a tighter market where supply is outstripping demand. In some areas, tenants have also been able to renegotiate their rental agreements downwards, according to local media. Another factor is the increasing availability of lower-rent apartments in neighbouring Dubai, which while traditionally more expensive than Sharjah, has itself seen a decline in rents in recent times due to oversupply and economic slowdown.

Meanwhile, Dubai’s authorities signalled in late 2017 that they would enact legislation encouraging the planning and building of affordable housing in key areas of the city. In addition, some developers in Dubai have begun targeting lower-income tenants. This has had a knock-on effect in Sharjah and Ajman, particularly for individuals working in Dubai and commuting. However, Sharjah’s occupancy rates and prices are relatively stable, and as prices there decline, people have tended to move from Ajman to Sharjah.

Rental markets in Dubai and Sharjah may continue to see downward pressure due to two new factors. The first is the January 1, 2018 introduction of a 5% value-added tax (VAT) across the UAE. While many transactions are exempt from this, citizens are concerned about not being able to afford a higher cost of living, according to local media reports, especially with water and electricity bills now subject to the levy. Second, a January 2018 announcement by the Ministry of Energy and Industry outlined future plans to remove gas and electricity subsidies. These factors will put pressure on landlords from tenants for rent freezes or even reductions, with many watching to see how this will unfold in 2018. One visible effect is that prospective tenants now are favouring buildings owned by Emirati nationals, who are entitled to cheaper utility consumption charges than non-Emirati owners – meaning that in a highly price-conscious market, prospective tenants may be less inclined to seek buildings owned by non-citizens.

Major Expansion

Meanwhile, a range of new projects are coming on stream in Sharjah, with some of these being mixed-use developments (see analysis). Benefitting from this in particular is the retail, hotel and entertainment real estate segment. The Sharjah Commerce and Tourism Development Authority has plans to expand the tourism sector dramatically, and aims to attract 10m visitors by 2021. As a consequence of this increase, demand for malls, hotels, restaurants, cafes and entertainment facilities is expected to surge, too.

To help meet this demand, the Sharjah Investment and Development Authority has launched its own hotel brand known as Sharjah Collection, with a growing number of hotels in the pipeline – the 53-key Al Bait Sharjah, managed by international hotelier GHM, and two tented establishments: Kingfisher Lodge in Kalba, and the Al Bayder Oasis. Some 1000 four- and five-star hotel rooms are due to be added by the end of 2020, including the 60,000-sq-metre, Dh60m ($16.3m) Mleiha Desert Resort, the 66,300 sq-metre, Dh121m ($32.9m) Al Khan Village Resort, and the Bait Khalid bin Ibrahim – two converted traditional Emirati houses offering 11 rooms in the Heart of Sharjah project.

In addition to a large number of holidaymakers, there are also many visitors arriving in Sharjah for business purposes. “Occupancy rates are very high in the emirate,” Suzanne Eveleigh, head of property consultant firm Cluttons Sharjah, told OBG. “There are a lot of unbranded hotels and hotel apartments out there that are also doing well. Sharjah attracts a lot of business travellers too, with the meetings, incentives, conferences and exhibitions industry a hot topic, and this is all despite the emirate’s prohibition on alcohol.”

Sharjah’s gross leasable area (GLA) for retail is set to double by 2020. Much of this involves the expansion of existing facilities, such as the Sahara and City Centre Sharjah malls. Additionally, the Avenues Mall is set to add 43,000 sq metres of GLA in 2018 and will be adjacent to the City Centre Al Zahia, which will add some 130,000 sq metres when it opens in 2020.

For all the increased activity, recent years have not been kind to Sharjah’s retail sector. Affected by the recent economic slowdown, “VAT imposition will also have an impact”, Shane Breen, director of commercial valuation and consultancy at Cluttons Sharjah, told OBG. These factors have led to generally flat rental rates in the existing malls and some high street venues have seen similar price decreases to residential apartments, with some retailers negotiating rent decreases.

Commercial Zoning

The emirate’s office market – which is also dominated by Sharjah City – was generally stable in 2017, with little change in average rents over the 12 months. The three main areas monitored by Cluttons – Al Soor, Al Majaz prime and Al Majaz fringe – all showed price stability, at around Dh60-70 ($16.3-19) per sq foot, with Al Soor at the lower end and Al Majaz prime at the higher, averaging Dh68 ($18.5) per sq foot.

General economic slowdown in the regional market has seen company downsizing, yet the prominence of mid-range offices not usually reserved by large international companies may have sheltered Sharjah against some of the impact. Mid-range offices continue to form the bulk of the local market, with these usually being the preserve of more cost-conscious enterprises. However, this may be affected by the introduction of VAT, raising total commercial occupier liabilities to some 14% of their annual rent, as the 5% charge is added to 5% commission fees and a 4% in municipality tax.

Industrial Zoning

As the backbone of the emirate’s private sector, industrial areas have seen substantial re-zoning of their peripheral areas over the last few years. Several old industrial zones are being re-categorised to allow residential, commercial or retail use, while new projects, such as the more out-of-town Al Saja’a Industrial Oasis (ASIO) and Emirates Industrial City (EIC), have been offered to enterprises as alternatives.

By November 2017, 75% of EIC’s 7.7m sq metres had been leased, with around 1000 companies in residence. The 14m-sq-feet ASIO was continuing to be developed in late 2017, with Sharjah Asset Management Holding, the emirate’s investment arm and the zone’s owners, signing a memorandum of understanding with Sharjah Electricity and Water Authority in October 2017 for utilities provision to tenants. Overall, however, “the industrial sector is down for the first time in a long time, with an rise in supply and a shortfall in demand,” Breen told OBG. “At prices of Dh110-120 ($29.9-32.7) per sq foot in ASIO and Dh105-110 ($28.5-29.9) per sq foot elsewhere for industrial land, investors are looking for higher returns than the segment can currently provide.” Average prices elsewhere include Dh105-110 ($28.5-29.9) per sq foot in EIC, Dh80-100 ($21.8-27.2) per sq foot in the wider Al Saja’a area and Dh120-160 ($29.9-43.55) per sq foot for land elsewhere in the city.

Outlook 

With a string of major projects delivering more residential, retail, commercial and hospitality space to the market over the next few years, large price growth is not expected in the immediate future. There are signs of economic recovery overall, with residential rates likely to see modest growth.

The popularity of mixed-use projects leveraging lifestyle and community concepts looks set to continue alongside higher-end one- and two-bedroom apartments to accommodate smaller expatriate families and individuals. Developments being rolled out in the short and medium term will also serve to boost the supply of entertainment, leisure, vacation and retail options – all essential to building a profile that will contribute to bring the emirate much greater long-term rewards.

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