It is difficult to overstate the importance of real estate to Sharjah – along with business services, real estate accounts for 21% of the emirate’s economic activity, with residential real estate forming a large chunk of that. While prices have fluctuated over recent years, and dropped in 2016, occupancy rates have remained at almost 100%, showing the strength of demand in the market. Meanwhile, with the recent regulation changes that now allow non-UAE nationals to buy property on a leaseholder basis (see analysis) in the emirate, the sector is certainly one to watch in the near future.
The Real Estate Registration Department provides real estate registration services across Sharjah, as well as documenting real estate dealings and valuations. The department also sets the emirate’s rules and regulations in relation to the real estate sector, prepares reports and studies for outside organisations, and resolves real estate disputes.
Geography
Sharjah’s geographical position relative to Dubai has meant that the emirate has long been considered an important real estate market for those looking for a less costly or more traditional place to live. As such, Sharjah serves as a home base for a significant number of people who work in Dubai and commute daily to their places of employment. This has led to the real estate market in Sharjah being heavily tied to the market in Dubai, with people moving to Sharjah in periods where Dubai rents rise, and moving back from Sharjah at times of lowering costs in Dubai. Both 2015 and 2016 saw a trend towards the latter, with prices in Dubai considered more affordable and therefore less movement north. Sharjah is on a beneficial place as it is in the middle and this contributes to high occupancy rates when compared to other emirates.
In 2016 occupancy rates for residential properties in Sharjah were at almost 100%, with new developments barely keeping up with demand. This is not unusual in Sharjah, even during the economic downturn in 2008-09 occupancy rates remained robust, with an occupancy rate above 90%, though prices did drop and took a number of years to recover.
Transactions
Sharjah is considered a highly stable real estate market, since there are few freeholds, unlike Dubai, and as a result there are not a lot of assets changing hands, and few people are buying properties purely to flip them for a higher price shortly after. “People who live in Sharjah are mostly families who plan to live here for a longer period of time,” Saeed Ghanem Al Suwaidi, managing director at Al Ghanem Real Estate, told OBG.
Real estate transactions in Sharjah in the first six months of 2016 totalled Dh12.1bn ($3.3bn), according to official figures, accounting for 1860 sales transactions, with almost 90% of those in Sharjah City. In total, 25,474 real estate transactions took place during the period, compared with 25,850 transactions in the same period of 2015, according to the Sharjah Real Estate Registration Department, with 14,411 ownership certificates transactions, 8165 title deed transactions and 1943 mortgage transactions. Meanwhile, May 2016 saw a record 114% year-on-year (y-o-y) increase in the overall value of real estate traded, with the total value rising from Dh1.6bn ($435.6m) to Dh3.4bn ($925.7m).
Rental Prices
According to international property agency Cluttons, rents in Sharjah declined in the first quarter of 2016 by an average of 5.7% quarter-on-quarter, with a y-o-y drop of 8.3%. They slipped a further 2.5% in the second quarter, and 4.7% in the third quarter, leaving a 7.1% decline between January and September 2016. For villa accommodation, rents went down on average by 13.2% in the first quarter alone, while apartments saw average rents drop 1.5%, according to Cluttons’ “Sharjah Property Market Outlook” report for spring 2016. The property agency expected rental prices to continue to fall throughout 2016, with a drop of 8-10% predicted on average “as we work our way through the bottom of the current market cycle”.
However, property services firm Asteco reports that rental prices dropped just 1% in the third quarter of 2016, pointing to a stabilisation of the rental market. Asteco says average rental prices were still 38% lower than in 2008. However, the company added that rents in Dubai have not dropped enough to shift the rental dynamics enough to lead to significant numbers of families relocating from Dubai to Sharjah, despite the lower prices.
According to Cluttons, a three-bedroom villa in Sharjah currently rents for, on average, Dh90,000 ($24,500) a year, which compares favourably to neighbouring Dubai, where a similar property in a villa could cost anywhere between Dh120,000 ($32,700) and Dh340,000 ($92,600). Meanwhile, Asteco estimates that new developments in Sharjah in 2016 rented for between Dh20,000-35,000 ($5450-9530) for a studio and up to Dh90,000 ($24,500) for a three-bedroom unit.
Developers are aware of the growing demand for higher-end gated accommodation in Sharjah and are developing and constructing new offerings to the market, according to Cluttons. “We expect to continue seeing larger and more elaborate residential communities built on the outskirts of the city, with a specific focus on the Airport Road corridor,” the spring 2016 report said. The company also pointed to the fact Sharjah placed third in the GCC region for the most sought-after investment location, according to its 2016 Middle East Private Capital Survey, carried out in partnership with YouGov.
Rising Fees
Effective as of August 2016, Sharjah doubled the attestation fees of residential rental contracts, up from 2% to 4%, with lease agreement document fees rising from Dh50 ($13.61) to Dh100 ($27.23) per tenancy contract document. Meanwhile, Khalid Al Shamsi, director of the Rent Regulation Department at Sharjah municipality, told local media in July 2016 that fees for attesting commercial tenancy contracts will increase from 2% to 5%, while attestation fees for investment contracts will increase from 1% to 3% of annual rent. It was also announced that starting on September 1, 2016, it would be mandatory to register all contracts through the government’s e-tenancy service, rather than going through traditional filing methods.
Traditional Market
Sharjah does not just draw in those looking for cheaper alternatives to living in Dubai. Many families choose to live in Sharjah precisely because it offers a more traditional and conservative way of life in adherence to Islamic law, with alcohol banned and a stronger emphasis on religious practices. “Sharjah is very focused on Arab expats who want to live in a traditional and conservative environment by providing them with a home away from home. In addition, it also has a cultural edge,” Raymond Khouzami, CEO of Al Thuriah, told OBG. “However, despite its unique selling point of offering lower costs per square metre than Dubai, prices in Sharjah are still relatively reasonable because apartments are much larger on average than those in its neighbouring emirate.”
Recovered Market
According to Abdulla Al Shaibani, CEO of City Properties Real Estate, the real estate sector in Sharjah was not immune to the financial crisis in 2008 and 2009, but started to make a comeback in 2012 when it began to recover some of the negative growth it had experienced in the years before. In 2013 Sharjah saw an almost 100% occupancy rate, despite the fact that between 2009 and 2016 there was a 20% increase in the overall supply of residential and commercial properties. Currently, there is a more than 90% occupancy rate when it comes to new constructions.
In terms of property prices, in 2007-08 property prices increased by 8%, which was followed by several years of slowdown, then around 9% growth in 2011-12. Now the market is experiencing around a 4-5% growth rate a year, according to Al Shaibani. “This is still good given the general slowdown in the economy and decrease in oil prices,” he added. Al Shaibani, like many of those in the industry, thinks that the recent changes allowing foreigners with UAE residency holders to invest in property will have a significant impact on the market over the long term. “I think there will be a significant influx of Arab investors – Saudi, GCC and Egyptian in particular,” he told OBG. “Big projects such as Tilal City are targeted towards this demographic.” Al Shaibani also believes that as the UAE gears up for several major regional or global events, notably the 2019 Asian Cup and Expo 2020, prices will continue to show strong growth, with 2017-18 likely to see a rise of 5-6%, followed by 10% in 2018-19 and “then perhaps as much as 20-25% in 2019-20.”
Leasehold Law
The right to freehold ownership in Sharjah remains restricted to Arab nationals of GCC countries. However, a law passed in late 2014 granted investors of any nationality, as long as they have UAE residency, the right to purchase leaseholds of 100 years in specifically designated developments outside of the city centre (see analysis). With the new law, Sharjah’s property market allows foreign expatriates living in the UAE to purchase leaseholds on property in zones authorised by the government, where previously property could only be sold to other UAE nationals, those from other GCC countries, and certain Arab nationals with a valid UAE resident visa and with special permission.
Industry insiders are still waiting to see the overall impact of this change. “It is becoming more of a freehold market now that some of the developments are allowing 100-year leases for non-GCC nationals. That said, it is still unlikely that it will become as volatile as the Dubai market, as there is no right to resale for lessees under this scheme,” Al Suwaidi told OBG.
Others think we will see a growing number of new developments looking to take advantage of the new regulatory changes. “I think in the next year or so we will see other projects that will offer the leasehold opportunity, which is great; especially for people who have lived here for many years but have been unable to own,” Suzanne Eveleigh, property management director of Cluttons, told OBG.
Nationalities
According to the Sharjah Real Estate Registration Department, for the first six months of 2016, 82.3% of property buyers in Sharjah came from the GCC region, with UAE nationals representing 91% of all GCC traders, followed by Kuwaiti buyers (4.5%), Saudis (2%) and Qataris (1.3%). Among non-GCC Arabs, there were 109 buyers from Syria, 90 from Jordan, 64 from Palestine and 60 from Iraq. In total, non-GCC Arabs purchased 993 real estate units in the first half of 2016, compared with 957 in the first half of 2015, a rise of 3.8%.
Restrictions
Due to its more traditional culture, Sharjah has limitations in place on where single men are allowed to live, with single men not allowed to share apartments in Sharjah’s specified family areas. However, local media reported in November 2016 that the practice is on the rise in areas such as Al Shuwahain, Al Guwair, Al Majaz, Maysalon and Al Qadisiah, with families pushing back by asking the local authorities to intervene and impose penalties on owners and tenants who rent or sub-let their properties to single men. Unmarried men and women are also forbidden to live together.
Locked-In Rates
Government regulations in Sharjah lock in rental rates for the first three years, guaranteeing renters peace of mind that landlords will not raise their rents strongly after the first year. This creates a situation where renters do not move around as much as perhaps elsewhere, giving more stability to the housing market. “Rents in Sharjah are fixed for the first three years, so there is little reason for tenants to move – it makes sense to see out the three years and benefit from the protection offered under the rental laws,” Shane Breen, associate director at Cluttons, told OBG. “This is a longer term location – people move in and often stay. The only time tenants move is if they don’t think they are getting value for money or if they are downsizing, for instance if they are sending their families back home and therefore move into smaller accommodation.”
Buy-To-Lease
According to George Khouzami, operations and commercial manager at Al Thuriah Group, roughly half of their properties are being bought to live in, while the other half are purchased with an eye on the rental market. “Those who buy to lease buy all of the smaller units, while those who buy in order to live in the property buy the larger properties on average,” he told OBG. Al Thuriah Group offers those buying their properties free property management services, while charging tenants commission to cover costs.
According to Khouzami, for those looking to buy-to-lease, it is the high-rise developments that have been most in demand. “High-rise properties are easier to lease out, and return on investment is generally higher than for villas,” he said, adding that one of their next developments will be focused on smaller apartments, which are more appealing to these kinds of investors. “There is a significant demand for these,” he added.
Pre-Pay
A number of residential developments in Sharjah have offered buyers the chance to purchase properties still under development. This trend has spread across Sharjah, but some have questioned its value to the market. “Payment terms is a slippery slope,” Al Thuriah’s Khouzami told OBG. “A couple of years ago people were only buying fully completed properties. This whole off-plan, pre-payment situation only developed a few years ago. It snowballed, but it’s unhealthy for the market, especially for developers,” he said, adding that while they have tried it in previous projects, their current projects are just accepting payment at handover.
Office Space
When it comes to office space in Sharjah, there is a sense that there is currently more supply than demand in the market, with many companies still preferring to be located in Dubai, which has led to lower rental prices being offered. This has not been helped by the lack of international-standard office supply. In Sharjah, few buildings offering office space were initially designed as commercial office buildings. Instead, buildings that were originally designed as residential properties were later converted to commercial space, or more often used as mixed-use developments.
While residential real estate continues to be in high demand in the emirate, the commercial real estate sector is set to witness some challenges in the coming years ahead. “A segment that is seeing some weakness in demand is that of office space,” Al Ghanem Real Estate’s Al Suwaidi told OBG. “The issue in Sharjah is that multi-storey buildings must be mixed-use, so as a result of much-needed residential being built, there has been an excess of commercial and retail that comes with it.”
Others agree that the office space market is likely to be a challenging one in the near future, with more supply than demand on the market. “There is still less demand for commercial space, as companies are not expanding at the same rate they were a few years ago.” Suzanne Eveleigh, property management director of Cluttons, told OBG. “There are still many buildings under construction or finished that have not been connected to an electricity supply yet – some for a very long time. Slowly, more and more are getting connected, but this means that as the supply increases, prices will remain low for some time while that supply is added,” she said.
According to Cluttons’ Winter 2016-17 snapshot, office rents have also been impacted by falling rents in Dubai’s more affordable submarkets, such as Jumeirah Lake Towers. This has led to rents in prime areas of Sharjah, like Al Majaz, dropping Dh10 ($2.72) per sq foot in the first nine months of 2016 alone, from Dh75 ($20.42) to Dh65 ($17.70).
“Rental yield you are getting on an office property has definitely come down,” said Eveleigh, though she added that prime areas will still be prime areas with higher prices and stronger demand.”
Old Office Stock
Beyond the rental price challenges coming from cheaper rents in Dubai, Sharjah struggles with the fact that there are still a lot of older office buildings that don’t comply with international standards required by large multinational corporate occupiers. However, this is set to change according to Shane Breen, associate director at Cluttons. “There are a number of developers with projects, either in the early conception or design phase at the moment, who are looking to the future and how to change the commercial market in Sharjah and attract more multinationals to the Emirate. For the most part Sharjah currently caters to the small to medium-sized enterprises market, where it has been very successful,” he said. “Larger companies who operate in Dubai often only look to set up an office in Sharjah for licensing purposes. Multinationals often just want to open an office to obtain a local trade licence, their requirements therefore are only for a 500-800 sq foot office.”
Outlook
While rental prices are down in Sharjah, demand is not, and with occupancy rates perpetually high, there are clear opportunities for new developments. This is unlikely to change with the coming of so many signature real estate projects. In fact, these developments are only likely to raise awareness of Sharjah as a place to live, potentially increasing demand further.
In addition, the new rules allowing foreigners a foothold on the property ladder via leaseholds are likely to have a strong effect, especially since Sharjah remains more competitively priced than Dubai. While the office market remains challenging, if the emirate succeeds in stimulating private sector growth, demand for office space is likely to follow soon.
Read More from OBG
