I receive frequent comments from readers of my website who warn of the dangers of investing in UAE property, citing the lack of legal regulation and inadequate government supervision. I always write back with the answer that I don’t think this is true any longer, and that the prevalence of this incorrect perception creates a buying opportunity for the long-term investor.
It is also one explanation for why UAE prime real estate prices are so low in the rankings of the top cities, especially when you consider its GDP per capita is about 50 per cent higher than resource-rich Canada. The estate agents Knight Frank recently placed Dubai at 19th on a list of the top 20 markets, and Abu Dhabi was not even on it.
Dubai prime property is staggeringly cheap in global terms, with London real estate six times more expensive and Hong Kong still pricier. Again, when people around the world ask me whether they should be buying homes in the UAE, this league table is my stock response.
If you follow the usual investment mantra of buying low and selling high then you ought to be selling in Monaco, London and Hong Kong and buying in Sao Paulo, Dubai and Cape Town. That said, I would stick to my previous forecast of a 20 to 30 per cent correction in Dubai house prices from the highs of this year. It would only be normal in any housing market cycle at this stage.
Still, I do note that the emirate has had a net gain of 125,000 residents in the first half of the year, according to the usually very reliable immigration authorities, and this could prove enough to overcome the large inventory of property for sale or rent. Airport passenger arrival statistics show an 8 per cent first half increase, again consistent with a large population increase in the city. That’s why rents are going up fast.
Could there be a time when UAE property is the most highly valued in the world and London and Hong Kong slip down the rankings? When I saw a 30-square-metre Mayfair studio advertised last month for Dh7 million, about eight times more per square metre than a Dubai villa, I did pause for thought.
The buyers may well be the same people. Arabs have been big investors in Central London since the oil embargo days in the 1970s, when real estate was last selling for dirt-cheap prices. They’ve also been early and prolific investors in Dubai.
But why have prices gone this high? Central London is congested and only now investing hugely in public transport infrastructure. Ride a bike at your own risk. Jobs there pay well in the financial sector but barely enough to live in others. Sky-high mortgages can be had for a song, albeit with 25 per cent deposits.
I could not help wondering if this is more past prologue than a signpost for the future. My old flat in Pimlico cost me US$120,000 in 1986. Today it would be $800,000. A young journalist would earn maybe three times what I did then, so they are out of this market. Only a stream of foreign investment capital continues to support rising London house prices, although this fell 6 per cent last month, according to Rightmove, with money from Russia drying up as sanctions make investment in the UK unpatriotic. Chinese inflows are down, too.
The latest purchasing managers index data from HSBC for the UAE confirms that the economy is headed for 4 to 5 per cent growth, with a score of 58, close to the five-year high of 58.3 in April. This outlook is also insulated from the geopolitics of the Middle East and Ukraine to some extent because the UAE is one of the world’s biggest oil producers.
If oil prices go higher, then the country will be a direct beneficiary in terms of higher oil revenue. The UAE is going to outgrow the UK for the next five years and maybe much longer.
To be sure there will be a downside here, too. The UAE is also the most open economy in the Middle East. In another global recession its important tourism, aviation and property sectors would undoubtedly suffer, although probably not nearly as much as in 2009 and 2010. Recently there have been signs of mega-projects again growing out of control, but rules and regulations are being effectively enforced.
The Dubai Land Department, for example, does an excellent job registering titles and the Dubai Real Estate Regulatory Agency has brought off-plan sales firmly under its control. Ultimately a realisation that property owners are now reasonably protected by the law will help to push UAE house prices much higher up the global league table.
Peter Cooper is editor of arabianmoney.net
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