Whether you are planning to buy, sell or rent property in the new year, here are some insights into the market to help you make the right investment decision.
A tale of two cities
Abu Dhabi and Dubai’s real estate markets have reached different points in their cycles, and while these two giants may be brothers, they need to be treated as individuals. Dubai is going through a slowdown and perhaps a peak in sales and rental prices, with some wondering if there is a chance of a correction and, if so, by how much? Or will it get a new lease on life and carry on upwards? Abu Dhabi, on the other hand, still shows good growth across rental and sales prices but seems to be taking a pause for breath, as some huge property releases last quarter have softened the rental and sales market in the capital.
Black gold
There has been much in the media recently about the sudden slide in oil prices across the world and much debate over how the economies of the big oil-producing nations will be affected. It is no secret that Abu Dhabi in particular has an economy that is heavily reliant (although less so each year) on oil revenue. It is one of the best-placed oil producers in the world to withstand long-term low oil prices but if, as is predicted by many, prices stay below the US$75 per barrel mark for next year we may see a scaling back, not just of fresh exploration but perhaps also of the emirate’s ambitious and costly infrastructure projects. Dubai is far more reliant on commerce, but with oil a big factor in the region any reduced profitability from the resource will have an effect on Dubai’s intra-regional trade and a knock-on effect on its economy. All this means fewer jobs, and fewer jobs mean a smaller population and a softer real estate market in the UAE.
The pipeline
In any prediction for a real estate market, you need to look not only at population statistics (is it growing or shrinking?) but also the pipeline of property coming to market. Dubai is a flexible, dynamic market with several developers and plenty under construction. JLL, for example, has predicted supply will increase by about 6 per cent next year. Abu Dhabi has fewer developers and has been far more cautious since the 2008 crash – JLL predicts the emirate’s supply will grow by just 2.8 per cent in the coming year. Look out for a shortage of supply to keep rents rising in the capital throughout next year if the influx of population is greater than the supply, and consider if Dubai will face a converse glut of empty property forcing rents down.
Regional stability
One of the reasons for the levels of investment in the UAE is the culture of the country and the relative instability of the rest of the region. The UAE has been a relative safe haven for capital and will continue to be so. A lot of this money has been invested in real estate – a traditional haven for spare cash. With little change in Syria and Iraq expected over the next year, watch Egypt’s steady improvement and the chances of a deterioration in Lebanon and Libya to judge whether capital will return to its old home or arrive in the UAE’s property market looking for a new one.
Indian influence
Indians have historically been the most active expatriate real estate investors in the UAE, according to the Dubai Land Department. A significant part of this investment has been caused by Indians fleeing the falling rupee, which hit an all-time low against the dollar last year. Many expatriates are now shifting their gaze back to the mother country, as investors predict the rupee will rise up to 8 per cent next year because of the actions of the new government led by Narendra Modi. If outlook for the rupee improves, look out for Indian expatriates selling up here to reinvest in the subcontinent for better gains.
Iranian promise
The government of Iran under Hassan Rouhani has made huge strides this year to thaw its relations with the world at large. A normalising of relations with its neighbour, the UAE, would reap huge financial and trade benefits and encourage more Iranians to take up residence in the Emirates. Keep an eye on UAE-Iran relations and expect a flood of new money and investment if significant improvements are made.
Ben Crompton is the managing director of Crompton Partners Estate Agents
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