The US dollar’s recent losing streak is proving largely favourable for the UAE's property market.
The drop in the greenback is making residential and commercial properties in the Emirates less expensive for foreign investors whose currencies have appreciated against it, analysts said.
The greenback has been weakening since mid-to-late last year, and its appeal as a safe haven is expected to further decrease as inflation in the US continues to cool and economic data in the country improves.
Headline annual consumer price inflation fell to 3 per cent in June, down from 4 per cent in May, and has been dropping since hitting a peak at 9.1 per cent in June 2022.
The Fed aims to bring inflation down to its 2 per cent target and has raised interest rates by a combined 500 basis points over the past 16 months, their highest since 2007, shortly before the start of the 2008 global financial crisis.
The greenback last week fell to its lowest level in more than a year.
The US Dollar Index – a measure of the value of the dollar against a weighted basket of major currencies – is now down by about 3.3 per cent since the start of the year and is about 6.53 per cent lower on an annual basis.
With the UAE dirham pegged to the greenback, the weakening US dollar is leading to an increase in foreign property buyers in the Emirates, according to analysts.
“The dollar depreciation is largely playing in favour of foreign buyers of property in the UAE, who account for quite a significant portion of the buying community,” said Taimur Khan, head of Mena research at CBRE.
“Particularly for currencies such as the euro and the pound, the dollar has dipped quite significantly over the past one year.
"The dollar has slipped around 8.4 per cent against the euro, and 6.7 per cent against the pound.”
HP Aengaar, chief executive at Asteco, says the depreciation of the dollar boosts the purchasing power of investors from Europe and the UK.
“As the dollar's value falls against their respective currencies, buyers will find Dubai properties comparatively more affordable as they need to spend less in their local currency to acquire the same property,” he said.
The UAE property market has continued to recover from the coronavirus pandemic due to government initiatives such as residency permits for retirees and remote workers.
The Emirates’ move to expand the 10-year golden visa programme, the economic gains generated by Expo 2020 Dubai and higher oil prices also supported property market growth.
Abu Dhabi recorded 5,472 real estate transactions worth Dh27.9 billion in the first quarter of 2023, according to the latest data from the Department of Municipalities and Transport.
The value of the deals in the emirate more than doubled during the three months to the end of March, while the volume of transactions, which includes property sales and mortgages, rose by 66 per cent.
Meanwhile, Dubai’s residential real estate prices rose in June at the strongest pace since 2014, as demand continued to rise.
The average price for residential units in the emirate grew by 16.9 per cent on an annual basis, up from 15.9 per cent year on year from the data recorded in May this year, CBRE said in its Dubai Residential Market Snapshot report this month.
Dubai is also the world's top market for $10 million homes as sales hit $3.1 billion in the first half of the year, edging past Hong Kong and New York, according to global property consultancy Knight Frank.
But while European and the British investors stand to benefit from a falling dollar, the impact is different for Indian and American property buyers.
The dollar has appreciated against the Indian rupee in the past one year, which in turn has affected Indian investors, who are among the top homebuyers in Dubai.
“For an Indian rupee-denominated buyer buying a property in the UAE, it has in fact become 2.8 per cent more expensive in the past year," Mr Khan said.
"A year ago, one US dollar was equivalent to 80 Indian rupees, now it is hovering around 82 rupees to a dollar."
American buyers are also facing steeper costs, given property prices have increased and the dirham is pegged to the US dollar, Mr Khan said.
However, Mr Aengaar cautioned that buyers need to consider currency risks before making long-term investment decisions.
“Whilst a weaker dollar may provide immediate benefits, buyers should consider the long-term potential of the investment,” he said.