China’s devaluation of the yuan against the US dollar is unlikely to dampen Chinese investors’ enthusiasm for Dubai property.
Indeed, property prices in the emirate remain “very reasonable” for Chinese investors compared to their home markets, according to Wang Liao, who owns Atomic Properties, which has offices in International City and Jumeirah Lakes Towers.
“Top cities like Beijing, Shanghai, Guangzhou and Shenzhen are three times more expensive than Dubai,” he said. Prices of properties in Hong Kong – one of the most costly real estate markets in the world – are five times higher. The yuan has fallen nearly 3 per cent following a series of devaluations by the People’s Bank of China this month amid concerns about China’s slowing economic growth and the recent rout of Chinese equities. This makes Dubai property more expensive for Chinese buyers, given that the UAE dirham is pegged to the US dollar.
Mr Wang said that Dubai, nevertheless, was still a young market that offered a high-growth investment environment for buyers, offering greater returns than property investments in more mature markets such as Hong Kong or London.
Property ownership in Dubai also offered greater returns on residential housing than Chinese investors could achieve at home, he argued.
“An extension of nine months would also allow users to adjust to a potential changed basket composition should the executive board decide to include the RMB [the yuan].” Translated, that means that the IMF will observe what happens in China over the next nine months.
There are a few reasons why elevating the yuan to a global reserve currency would be advantageous to China.
The US dollar’s role as a global reserve currency has shored up US Treasuries as safe investment havens. That makes international borrowing cheaper for the US, and means that the American government can spend less on interest payments.
It also pushes up the US exchange rate, as demand for dollar-denominated assets is higher than it would otherwise be. A paper from McKinsey, which tries to measure these effects, argues that the benefit to the US has been marginal. In normal times, the benefit is worth between 0.3 and 0.5 per cent of GDP, while in times of financial crisis, the artificially strong dollar can cause more harm than good.
Scholars of international relations have argued that part of America’s “soft power” – its influence over other countries – comes from having the ubiquitous dollar in a role of prestige and status. Whatever the intangible effect of having Lebanese nationals preferring to use the US dollar instead of the Lebanese pound for transactions, the US probably benefits. But countries do not get all these benefits just by joining the IMF’s global reserve system. These factors are mostly US-specific, as the dollar accounts for most of the global reserve currency bucket. Any benefit to China from the yuan’s inclusion would be much smaller.
mfahy@thenational.ae
Follow The National's Business section on Twitter