Sharjah feeling a knock-on effect of cooling Dubai rents

Sharjah feeling a knock-on effect of cooling Dubai rentsImage Credit: Supplied

With the announcement of a landmark law allowing non-GCC expats to buy property in Sharjah, a new dynamic is playing out in the emirate's property market. For decades, property ownership in Sharjah had been limited to GCC nationals as well as other Arab citizens granted exemption by the Ruler. When other emirates announced new freehold regulations and amended laws to attract foreign property investors, Sharjah preferred to bide its time and chart its own course.

The rental segment has been a pillar in the emirate's real estate market, mainly because of limited sales activity as a consequence of vague foreign property ownership rules. Sharjah's rental market is driven primarily by tenant migration from Dubai, where, according to a report by Asteco, average apartment rental rates rose by 65 per cent from 2011-14.

Last year the average annual rent of a one-bedroom apartment in Sharjah was about Dh35,000, rising to Dh44,000 for newer properties. In the same period, only International City could compete with Sharjah's prices, as values in other Dubai locations ranged from Dh65,000 (Deira and Jumeirah Village) to Dh150,000 (Palm Jumeirah) for a one bedroom apartment.

However, by the fourth quarter of last year government-led efforts to control the sharp rise in Dubai's property values started to take hold, creating downward pressure on prices and making Dubai attractive again to price-sensitive tenants living in the northern emirates. The impact in Sharjah was swift: Cluttons reported a sharp decline in rental price growth during the fourth quarter: 0.5 per cent compared to 5-10 per cent in the first nine months of last year. During the first quarter of this year, rent growth flatlined as Dubai started to win back tenants and newly completed accommodations in Ajman likewise chipped away at Sharjah's market share.

''The current slowdown in Dubai has effectively put the brakes on tenant migration,'' says John Stevens, Managing Director of Asteco. ''A potential correction in rents for both Sharjah and Ajman is anticipated in 2015.''

It was against this backdrop of softening rental prices that the Sharjah government announced in November Executive Council Resolution (ECR) No. 26 of 2014, which clarifies property ownership rights for non-GCC expats, allowing them to purchase property under leasehold arrangements of up to 100 years. And while it is unclear if the sudden drop in rental revenues influenced Sharjah's decision to open its property market to foreign buyers, it is obvious that the new law will create a surge in interest in the emirate's sales market.

A handful of first-mover developers such as Tilal Properties, JMS Property Development and Management and Sharjah Holding have launched new projects following the announcement of the new law, jumping at the opportunity to attract a much broader base of individual property buyers and investors in the emirate.

The Sharjah government, for its part, is taking a more measured approach in partnering with the right investors and developers.

''We are looking for investors that are committed for 30 years and not less than 10 years,'' says Marwan Al Serkal, CEO of the Sharjah Investment and Development Authority or Shurooq.

''We're open for a lifetime partnership, but we are definitely not looking for people or investors that are going to try to sell at the first chance.''

Tilal Properties was the first to offer long-term leasehold property under the new law, although its project, Tilal City, only sells land plots for villa, town house, apartment and commercial building development, and not ready-made property. Haysam Jazairi, Business Development Executive Director of Tilal Properties, tells the huge price difference will be a decisive factor driving buyers to Sharjah.

''In Tilal City you can construct your own apartment building for the price of a villa in Dubai,'' says Jazairi. ''Smaller investors now have the upper hand.'' Plots in Tilal City cost around Dh110 per square foot, although some were reportedly sold for as low as Dh30 at the project's launch in November.

The Al Rayyan project by JMS and Al Zahia community development by Sharjah Holding are likewise new development concepts being introduced in the emirate. Expected to be completed by the end of next year, Al Rayyan, a three-tower mixed-use building development, offers 504 residential units to Sharjah's freehold and leasehold markets. Randa Kamal, CEO of JMS, says Al Rayyan is the first project to integrate residential, retail, office and hotel components in Sharjah. ''I think the property market can benefit from a little competition,'' she says. ''Variety in developments and amenities is also necessary to attract more residents and companies to relocate to Sharjah.''

Sharjah Holding, a joint venture between the Sharjah government and Majid Al Futtaim, is building the emirate's first gated mixed-use community development, although Al Zahia is still awaiting approval from the Sharjah Real Estate Registration Department (SRERD) to sell to non-GCC expats. But with 2,400 residences consisting of villas, town houses and apartments, Bader Hareb, Chief Property Officer of Majid Al Futtaim Properties — Communities Business Unit, says Al Zahia is strongly positioned to address the strong interest for property ownership from different nationalities in Sharjah.

''There is a strong sentiment from various groups of people to invest in the property sector in Sharjah,'' says Hareb. ''Therefore, we believe that the already existing demand for residential units will remain high.''

According to the SRERD, five new real estate projects are under review for approval to sell to non-GCC expats under 100-year leasehold agreements. Each of these projects will have between 300 and 400 property units, totaling around 2,000 properties. The number is a far cry from the figures in Dubai, where property consultancy JLL predicts around 22,000 units to be delivered this year. But given its somewhat unconventional ways of managing its property market, this seems to be exactly where Sharjah wants to be right now.

''Property is the main thing here,'' says Al Serkal, acknowledging the real estate sector's central role in Shurooq's efforts to attract investors to the emirate. ''But we're trying not to oversupply the market. We're trying to make sure that whatever is developed is maintained at the right level.''

Read more on a home away from home for less in the UAE

Source: Jobannie Tabada, Features Writer, Property Weekly


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