Official figures for last month showed house price inflation in Dubai falling below 7 per cent per year for the first time since last October.
That is the first sign in government data that Dubai’s housing market may be starting to cool – as official inflation figures lag behind private sector estimates that show the emirate’s rents and prices already falling significantly.
Overall consumer price inflation remained flat at an annual rate of 4.2 per cent in July.
Property prices in Dubai have fallen by 4 per cent over the past three months, while rents have dipped by 2 per cent over the same period, according to data from Reidin, the real estate data provider.
Government data lags behind private forecasters because the sample used by the official statistics body is not updated as regularly, analysts have said.
Property transactions fell by 69 per cent in the second quarter, according to data from Dubai Land Department.
This suggests that government measures to trim demand in the real estate sector have had an effect, according to Khatija Haque, an economist at Emirates NBD.
Dubai’s government has doubled its transaction tax on the purchase of properties, and introduced limits on the size of mortgages homebuyers can take out.
A stronger dollar has also slowed the housing market. The higher dirham has raised the price of buying a house in Dubai for foreign investors. But sellers have benefited from the same exchange rate – as it means that the proceeds of Dubai home sales go further in foreign currencies.
Food prices showed a one-off spike of 5 per cent, following the end of Ramadan. That is in contrast to a run of low and negative price changes, as global food prices hit five-year lows, according to the United Nations Food and Agriculture Organization.
Inflation from abroad is set to fall further following China’s devaluation of its currency, the yuan, which has fallen by 3.5 per cent since Monday.
That means cheaper consumer goods in Dubai – China is Dubai’s largest trading partner, having overtaken India and was the UAE’s second-largest trading partner in 2014.
Most of the emirate’s inflation is driven by increases in domestic costs, limiting the impact of foreign drivers in influencing the headline inflation figure, according to Alp Eke, senior economist at the National Bank of Abu Dhabi.
The deregulation of petrol and diesel prices, implemented from August 1, is likely to push up prices in future inflation measures, economists have said.
Standard Chartered raised its estimate for the 2016 inflation rate by 0.3 percentage points after the announcement, while Abu Dhabi Commercial Bank estimates that new, higher fuel prices will add about 1.3 per cent to headline inflation next year.
abouyamourn@thenational.ae
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
