The UAE and the emirate of Dubai are uniquely positioned to benefit from the drop in global oil prices but other Gulf states may revise their spending plans in case the bearish trend continues for a longer period.
The Dubai economy is not dependent on oil revenues and its property sector is now driven by end users with a strong government check on speculators who manipulated the market in the past.
Oil importers in the UAE’s catchment area such as India, Europe and some parts of Africa will benefit from the collapse in oil prices. This, in turn, will lead to good demand for investments in non-oil sectors in Dubai such as real estate, logistics, tourism, hospitality and transportation.
With investors from India, Pakistan and the UK traditionally purchasing most property in the UAE, they could gain from the downturn in crude prices.
While oil is one factor influencing the real estate landscape, negative sentiment, global economic uncertainty and the threat of new supply are arguably more important trends for the Dubai market at this time. Investors have become more cautious. This was mirrored in the slowdown of residential transactions during the second half of 2014, with transaction numbers down over 26 per cent on the same period the previous year. While transaction numbers picked up again during Q1 2015, we do expect to see more prudency over the course of the next 12 months, ultimately leading to lower volumes and sales price deflation.
$60-80 a reasonable range
Oil prices were unrealistically high over the past two years. Prices above $100 were unsustainable.”
A combination of poor global economic data, surge in US shale production and the return of Libya output contributed to the fall in oil prices last year. The global oil industry will continue to face headwinds in the longer term.
“Chinese demand is weak and the economy is switching to a less commodity-intensive path of growth. European and Japanese demand are also weak. India and the US are the only bright spots. In addition, there could be 800,000 barrels of oil coming online daily if Iran reaches a nuclear deal,”
Iran’s positive impact
The return of the Iranian buyer to the Dubai property market, however, will be a cause of great cheer.
“If Iran oil comes back onto the market, it would shave off around $5 to $8 from the per barrel price. Also, the release of almost $150 billion in frozen funds will lead to a significant rebound in the Iran economy which will benefit Dubai real estate. Companies looking to set up business in Iran will also want to create a base in Dubai,”
The Dubai residential sector will see handover of around 23,000 new units, compared with approximately 14,000 and 16,000 units during 2013 and 2014 respectively. These figures will have a dampening effect on the market, with Dubai property prices expected to fall by around 10 per cent. However, a strong dollar, to which the UAE currency is pegged, has helped cushion the impact of the fall in crude prices.
“Owing to a stronger dollar and capital appreciation, we may start to see more transactions this year as people will be more motivated to sell,”. He emphasised on the need to improve the structure of the Dubai economy in order to attract more institutional investments.
Delegates pointed out that Dubai real estate is now driven by end users, as opposed to speculators in the previous property cycle.
“There has been a move in sentiment to a far more cautious approach. Property prices in the UAE are cooling because of prudent regulations, tax changes in India, supply-demand imbalance and the absence of Russian purchasers. Developers are taking a more cautious approach. Projects that would have gone ahead had oil prices been higher are now being reconsidered,”
Three positives for the Dubai economy: Ideal demographic mix, conducive government policies and low interest rates for expatriates compared to their home market. “There are very few markets in the world where a government can ignite demand so quickly”
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