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Ras Al Khaimah 2018 | REAL ESTATE & CONSTRUCTION | REVIEW

Ras Al Khaimah's housing sector flattened slightly in 2017 but its close ties with the booming tourism industry give investors high hopes for the future.

Ras Al Khaimah's real estate sector is distinguished from the rest of the UAE in its value and new opportunities for prudent investors. The UAE's northernmost Emirate has historically had a lower profile than Dubai and Abu Dhabi, but recent years have seen strong growth as a new wave of developments touting affordability and accessibility have sprung up. New activity in both the residential and commercial sectors has made the Ras Al Khaimah real estate sector one of the fastest growing in the UAE. This real estate growth has given the construction sector a steady stream of new demand, and planned infrastructure development projects should help further boost the sector.

A study from RAK Chamber estimated that the Ras Al Khaimah real estate market grew by 45% from 2011 to 2015, reaching USD1.3 billion in 2015 and placing the sector behind only industry and tourism for contributions to the Emirate's economy. That growth has only continued through 2017, which saw largely steady performance. The real estate sector has a growing roster of participants, but the leading firms based in the Emirate are RAK Properties, Al Marjan Island, and Al Hamra. The sector is overseen by the Real Estate Regulatory Agency (RERA), which was founded in 2009 to serve as a single point of contact for developers and contractors. After attaining approval from the government, developers register with RERA, which oversees escrow accounts to prevent fraud and sends engineers to work sites to ensure that projects are in line with codes. RERA oversees developments with a total value of over AED6 billion, and has won praise from international investors for helping build a real estate infrastructure that is in compliance with international standards for fiscal management. Several UAE banks have signed agreements to manage escrow accounts with RERA, demonstrating the financial sector's willingness to work with regulation in this regard.
The primary draw of the Ras Al Khaimah housing sector is its unique combination of luxury and affordability relative to the rest of the UAE; as the sector has grown, it has come to offer new high-end options while still remaining a better value than Dubai or Abu Dhabi. Recent years have seen the arrival of a wave of new luxury villa projects, including the USD35 billion Bayti Homes project on Al Hamra beach. Bayti Homes' 123 units span more than 77 million sqft and are part of a larger Al Hamra Village complex that includes more than 2,500 residential apartments and more than 1,100 villas and townhouses, as well as leisure amenities including retail centers and a golf course. Another high-end luxury project, the Bermuda Villas in Mina Al Arab, came to market in July 2017; at 157 units the development represents the core of RAK Properties' Mina Al Arab waterside development. Al Marjan Island has made its name on tourism—its New Years Eve 2018 celebrations broke a Guinness World Record for the largest fireworks display—but the manmade island cluster also includes more than 6,500 residential units.
These projects are examples of Ras Al Khaimah's strategy with regard to the high-end housing market. The Emirate's luxury housing sector is closely linked to its tourism sector, which saw arrivals rise by 19% YoY in 2017. The same factors that draw foreign visitors are also being used to generate new residential development. At Al Marjan Island, for example, executives have been upfront about how their goals for residential development are linked to continued tourism growth. Often, these new developments are targeted at GCC consumers looking for second homes in attractive areas.
In several cases, this strategy leads to residential development in tandem with hospitality industry development. At Al Marjan Island, resorts, residential apartments, and villas are part of the same island infrastructure, both closely integrated to the leisure and retail opportunities that have made Ras Al Khaimah a destination. Al Hamra and RAK Properties, the Emirate's two other primary developers, have seen growth as well by following this strategy. RAK Properties reported YoY growth of 10% in 2017 thanks to its new residential offerings and the launch of Hayat Island, a 6 million sqft mixed-used development. Al Hamra, the Emirate's largest developer, has codified its integrated development strategy by announcing in March 2018 that it would bring its real estate, hospitality, and tourism subsidiaries under one umbrella.
Along with these high-end projects, Ras Al Khaimah developers are also adding housing options for the UAE's growing middle class. By focusing on amenities for families that still give access to the Emirate's growing lifestyle options, developers feel that they can build a stronger market. Adding a range of residential options at a variety of price points also helps protect the Ras Al Khaimah housing market from regional instability. Though overall growth and new development figures have remained strong, Ras Al Khaimah has seen slightly weakening residential demand as the larger economic environment has led to softer performance and increased price competition from neighboring Emirates. Market research firm CBRE reported that rental rates in Al Hamra Village and Mina Al Arab fell 6% through the first half of 2017. The final quarter of 2017 saw rents begin to flatten, however, industry leaders expect the sector to stabilize in 2018. The continued strong performance of the hospitality market indicates that even in the face of increased competition from the rest of the UAE, Ras Al Khaimah is able to attract visitors and investors, and this should generate positive spillovers for the real estate market.
Ras Al Khaimah's real estate sector has also made extensive use of real estate investment trusts (REITs), an increasingly popular option in the GCC and the UAE in particular. Designed to give investors a way to buy equity shares in previously illiquid assets, REITs have gained steam since the first one was listed on the Dubai Nasdaq in 2014. As a sharia-compliant investment vehicle, they have been particularly popular in Islamic regions. Equitativa, the parent firm of the first established UAE REIT, received an exclusive decree from the Ras Al Khaimah government in late 2016. In February 2017 it launched The Residential REIT, which includes more than 500 homes from Dubai Motor City and Al Hamra Village in Ras al Khaimah. The Emirate's regulations require that a majority of the REIT's shares be owned by UAE or GCC nationals, but industry leaders believe that the REITs can grow to become a key part of the real estate sector.
Ras Al Khaimah's construction industry can be split into real estate development and infrastructure sectors. The continued growth of the Emirate's tourism industry has provided a steady stream of new large-scale construction projects over the past few years. In an effort to meet its goal of hosting 1 million visitors by the end of 2018, Ras Al Khaimah has added thousands of hotel rooms to handle demand. New projects are still in the pipeline, but the rate of new construction has decreased slightly as new supply has come to market. Though government figures estimate that Ras Al Khaimah needs more than 4,000 hotel rooms by 2018 to meet demand, the projected supply due to come to market in 2017 is well below that. Still, however, the volume of hospitality and housing construction currently underway means that there is no shortage of activity. This new production should also benefit the Emirate's cement and ceramics industries, which are among its most important. In contrast to other Emirates, Ras Al Khaimah has an industrial base that works closely with construction firms to help meet demand.
Ras Al Khaimah's leaders have long understood that infrastructure improvements will be key to their goals of strengthening the nation's economy through industrial and tourism growth. Over the past decade, infrastructure improvements lagged behind economic growth at times, placing significant demands on the Emirate's logistical chains and threatening to limit growth. Improving roads and flood response capabilities is one of the priorities for Ras Al Khaimah, and projects dating back to 2011 have widened and repaired old thoroughfares and added new drainage capacity.