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Sharjah 2015 | CONSTRUCTION & REAL ESTATE | REVIEW: REAL ESTATE

Sharjah's competitive rental climate is set to keep the market vibrant over the years to come.

Affordable accommodation, in comparison with neighboring states, has elevated Sharjah to the top choice for re-location in the Emirates. There has been a particularly significant increase in demand from those wishing to commute into Dubai and also of refugee-capital as Levantine families escape regional turmoil. The commercial market has mirrored the success of the residential segment. Moreover, the diversification of the economy into emerging sectors such as aviation and finance has driven demand for office space. Thus, the real estate sector is expected to outpace growth of the national economy over the next two years. Analysts point to the strong response rates and confidence levels in Sharjah's real estate markets, which will consolidate real estate into the strongest sector in the Gulf state's economy in 2016.

BROADENING THE APPEAL

November 2014 saw the introduction of new legislation in the Sharjah real estate sector. Executive Council Resolution 26, Concerning the Usufruct of Real Estate Properties in the Emirate of Sharjah, was implemented to open up the property market to foreign investment. In a first in the history of Sharjah, non-Emirati citizens who hold a UAE residency visa have been granted the right to buy property in the Emirate. The leases will be available for a time span of up to 100 years. However, there will be some restrictions in place as the authorities try to converge investment toward developments in the suburbs and away from the city-center. A local newspaper titled The National has commended the initiative as a smart move at a fundamental time, when prices in neighboring Emirates have been rising and international buyers are looking to invest elsewhere.
The National has featured Tilal City, the first new development to offer long leases to foreigners. The project, on an area of over 2 million sqm consists of 1,800 land plots on Emirates Road. Sharjah Asset Management and Eskan Real Estate Development are developing the project. It is hoped that this development, and others like it, create new cluster cities to decrease congestion in the city center. Meanwhile, related legislation will discourage the practice of off-plan speculative flipping, where developers sell in bulk to speculators who market land on at a higher price.

Another form of recent favorable legislation for Sharjah's residents is Sharjah Municipality's rent cap rules. Previously, with no rent cap in Sharjah, jumps in rental prices could be as high as 30-50%. Recently, Sharjah's tenants received the right to not have a rental increase for three years per registered property. Cluttons Spring 2015 Property Market Outlook report states that these rules have moved tenants, “firmly into the driving seat" in negotiations with landlords upon renewal. Landlords, worried about the risk of having a void property and unwilling to lose profits through legal disputes, are leaving rents reasonably priced and avoiding any hikes.
In addition to the favorable renting climate, the Government of Sharjah in partnership with Majid Al Futtaim Properties and Khatib & Alami is developing an attractive initiative to lure property-buyers into the Emirate. The project being developed, the first gated community in Sharjah, Al Zahia, hopes to allure buyers from across the Arab region. The first phase of development celebrated the selling out of 51 units for around AED 750-900 psf. Expanding over 1,500,000 sqm, Al Zahia, “…heralds a new age for residential living in Sharjah. Its vision is the creation of a community that embodies Sharjah's traditional values in a progressive and contemporary setting."

Cluttons draws attention to an underlying factor of the expansion of projects such as Al Zahia, as instability and violence blaze across the Middle East, Sharjah has become a safe-haven for families escaping the turmoil. Refugee-capital, now flooding into Sharjah, is being solicited by the low value of property, which is up to two-thirds lower than in neighboring Emirates. A survey conducted by Cluttons at Tilal City development notes that 16% of buyers were Syrian and 5% Palestinian. Sharjah's “…strong cultural identity and ties to Islamic heritage and tradition have proved invaluable in allowing it to emerge almost unchallenged in the region as a more easily accessible market."

Despite the positive outlook and favorable legislative trends in the Emirate, Cluttons expresses a degree of caution when analyzing the growth of Sharjah's real estate sector. Waiting lists for some formerly popular and well-located residential buildings have experienced a decrease in numbers. As well as Dubai, Ajman is also emerging as a favored competitor to Sharjah. Growth in Sharjah's rental value decreased discernibly to 0.5% at the end of 2014, down 25.9% from the previous quarter. However, this should be analyzed as a natural market fluctuation due to the dependency of Sharjah's property market on prices in Dubai, which have experienced a slowing in the rate of increases. Cluttons expects the slowdown in Sharjah to persist throughout 2015. Nevertheless, it is expected that property market fluctuations will eventually stabilize with continued smart legislative control from the government.

MIND THE GAP

The behavior of the commercial real estate market in Sharjah has not been dissimilar to that of the residential market. The increasingly diverse economy is withstanding oil price fluctuations, aggrandizing infrastructure and attracting investment through proximate MICE tourism. These key factors are the engine of Sharjah's commercial real estate growth.

Office rates in peripheral areas have risen by 8-9%, notwithstanding decreases in prime areas. Despite the oil price fluctuations, and the pausing of a number of expansion projects by oil corporations; the emergence of other segments such as SMEs, aviation, banking and finance has sustained the real estate economy. Demand has stabilized and prices are remaining unchanged. This includes rents for both Grade A schemes such as Crescent Tower (AED 75/psf), United Arab Building (AED 65/psf), and also rents for smaller space leased to SMEs at around AED 40-55/psf, which are highly competitive in the UAE.

An interesting innovation will be the Al Rayyan project, the first mixed-use development in Sharjah that combines commercial, residential and leisure-dedicated floors. This 2,508,38 sqm complex will include a 38-story commercial tower with a 2,322sqm hypermarket on the first floor and 90 shops on the second floor.
Rental growth in the industrial sector is being supported by strong underlying demand. Infrastructural improvements and regeneration are taking place, such as the rezoning of Industrial Area 1 to commercial status and the building of the metro line and GCC rail network. A confluence of these and other factors is augmenting both interest and activity levels. An example is Industrial Area 18, where rents have doubled. Cluttons notes that with diminishing availability of land in the core Industrial Areas; the “…upward pressure on rents is likely to persist, with more peripheral estates also likely to benefit from the spillover of demand."

Another factor that will drive the growth of Sharjah's real estate sector over the coming 4-5 years will be investment in facilities to accommodate MICE tourism. Mohammed M. Saddiyah, Khatib & Alami explains in a TBY interview that a substantial volume of construction to be completed for Expo 2020 in Dubai will be developed in Sharjah, due to the Emirate's proximity; “I do not fear a bubble (in Sharjah)…the Expo 2020… requires many hotel rooms… The current supply of hotel rooms is insufficient. Therefore, you will see the construction of hotels in… Sharjah."

Sharjah's real estate market has experienced strong growth and increasing demand for residential and commercial properties. The sector can look forward to a solid five year performance, after which a period of stability is likely to be witnessed. Randa Kamal, JMS Property Development & Management told TBY that, “The (sector)... is in very good shape… because there has not been… much construction in recent years… Hopefully it will continue to become even better, as more investors realize that there is ample room for construction… We are hoping that the recent Emirati decree allowing non-UAE residents to own property on a leasehold basis will more fully open up the market."