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May week 1
The real estate industry faces a new reality
How did real estate developers deal with the repercussions of the Corona pandemic?
Since the beginning of the holy month of Ramadan, some cities in the Middle East are looking at opening certain vital commercial and economic sectors which were closed post the outbreak of the Corona virus. Their goal is to minimise economic losses whilst adhering to highest standards of safety and public health requirements. On the other hand, other cities are closely monitoring these measures before applying similar methods.
The weekly report issued by Al Mazaya Holding Company highlights that this would be the first time that during Ramadam markets have considerably slowed down.
On the real estate front, all parties are faced with a new reality imposed by the Corona pandemic, which must be dealt with intelligently in order to withstand the implications that come along with the outbreak. The Benefits Report analysed the rental market in the Gulf Cooperation Council states and recorded a state of flexibility in the contractual relations between owners of companies, individuals and tenants. The report indicated flexibility on part of landlords in granting discounts on the annual rental value, or exempting tenants from rents for few months, or providing facilities to delay rental payments.
Legislative amendments in laws were also requested which forced governments to study rental practices by some landlords towards tenants during this crisis period.
The advantages report recorded that real estate markets are filled with a large number of residential and commercial units, offered at exceptional costs by developers thus increasing demand for real estate. Owing to the current circumstance we see that prevailing prices and diversified offers have become compatible with a broader segment of society, despite the scarcity of liquidity or the dominant psychological state aimed at not risking the available liquidity in light of the blurring of the current situation.
With the current economic downfall affecting buying and selling operations, many real estate projects have been suspended or postponed until further notice. Some companies are also finding it difficult to fulfill their contractual obligations making it difficult to cover their operational and administrative expenses.
However, the benefits report excluded that real estate development companies or real estate asset management companies with solid or positive financial solvency face deep financial challenges over their financial positions until the end of the current year due to the defect in the leasing system in both its commercial and residential aspects. This is particularly common among large and medium companies with long experience that the market relies on a diversified mix of income sources. These companies have many options to maintain their financial position, foremost of which is not to distribute profits and keep them to provide liquidity, in addition to options for rescheduling debts in agreement with banks according to the payment mechanisms that are compatible with current and expected cash flows.
On the other hand, the Privileges Report sees the movement recorded by the region’s stock exchanges as an immediate response to the gradual state of opening up the economic sectors. These stock exchanges represent the various sectors and quickly reflect both positive and negative developments within the banking, financial services, transportation, real estate and health care sectors. The commodity and food production sectors in particular remained under pressure and fluctuations were recorded in various sessions. It is worth mentioning here that the economic performance indicators can be read through the daily closings of the financial markets and therefore the available indicators indicate the beginning of coexistence and a gradual response during the next few days.
Undoubtedly, the commercial real estate sector is the most affected among other real estate sectors as a result of the direct impact of the closing situation, which weakened the solvency of the operating companies. With economic sectors gradually reopening, it is expected that the commercial real estate sector will avoid many challenges and obstacles, foremost of which are bankruptcy and closures, in addition to the possibility of improving the ability of the sector companies to pay their financial obligations.
The next few days will witness focused decisions on the mechanisms that guarantee and the stages in which the world’s economies will be restarted, as the United States of America is expected to restart the economy in 3 stages, while many European Union countries are preparing to reopen vital sectors, particularly Spain, Italy and Germany. This is after all countries of the world have recorded a significant decline in consumer sentiment as a result of the lockdown, which threatens greater risks if continued for a longer period, bringing the world on the threshold of an imminent and profound recession.