Dubai property outlook better than forecasts

The outlook for Dubai’s property market may not be as bearish as industry analysts have forecast, according to new data from Emirates NBD, Dubai’s biggest bank.

A majority of householders expect rents and house prices in Dubai will continue to rise, survey data show. Rising sales prices, sustained government capital expenditures, jobs growth and a growing population could keep rents rising, albeit it at a slower rate than previously, analysts at Emirates NBD said. Further signs of the dollar weakening, or of rising oil prices, could spur business confidence and lift the property market later this year, they said.

This contrasts with a 10 per cent fall in rents in 2015 projected by the property consultancy JLL, and a 20 per cent fall in sales prices projected by the ratings agency Standard and Poor’s.

The survey results also differ from industry reports on the real estate market in the first three months of the year.

JLL and its fellow property research companies Asteco said that apartment and villa rents either remained static or fell in the first quarter, while CBRE said average house prices in Dubai fell for the first time since 2008.

Caps on mortgage lending, and a doubling of the property transaction fee to 4 per cent, have helped to dampen chances of a speculative real estate bubble – like the one that burst in 2008, wiping out half of the value of many Dubai homes.

Twenty-five thousand homes will be added to Dubai’s property market this year, according to JLL. Many of these projects are focused on upper-middle and higher-end consumers, meaning that the impact on the affordability of cheaper houses may be slight.

Sustained non-oil growth is likely to keep domestic demand for property in the emirate growing, even as international investors are dissuaded by the higher dollar, analysts said. The UN expects the UAE’s urban population to grow by 2.3 per cent annually.

Emirates NBD did not provide projections for rents, but the quarterly survey data paints a more optimistic picture of demand in Dubai’s property market than other consultancies have suggested.

A second new economic data tracker for the Dubai economy showed robust growth continuing in April, albeit at a slower pace than in March.

The Emirates NBD Dubai Business Activity Index posted a score of 57.2 in April, down from the index’s March score of 60.6 – where a score above 50 implies an expansion in economic activity.

Respondents said that increasing “risk aversion among clients” was a key reason for the slowdown in activity, as uncertainty over the outlook for oil spilt over on to decision-making.

Construction and tourism recorded strong growth in output and employment in April, the survey indicated.

Dubai’s economy is likely to suffer as low oil prices eat into the spending power of the region’s residents and businesses, economists believe. The emirate is susceptible to the impact of low global growth on trade and logistics demand, analysts said, while a strong currency has decreased the attractiveness of Dubai’s exports and investing in the emirate’s real estate.

Wages rose 6.3 per cent in the UAE in 2014 – just about keeping pace with increases in the cost of living as higher rents push up inflation in Abu Dhabi and Dubai, according to data from Gulf Talent, the employment site.

The highest increases in wages last year were in the construction, telecoms and logistics sectors, the report said.

Across the economy, prices rose by 3.1 per cent in 2014, according to figures from the National Bureau of Statistics, but the official figure probably understates the impact of rent rises on the overall price level.

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