The impact of global inflation on the UAE economy and the emirate’s real estate market should be limited for now
Dubai’s residential market is expected to record 61.9 billion dirhams of villa and apartment transactions in the first five months of this year despite a record surge in global inflation, according to the latest report.
Global real estate consultant Knight Frank believes that the impact of global inflation on the UAE economy and Dubai‘s residential market should be limited for now due to effective government measures.
“There are many reasons to be cautious about controlling inflation in the UAE. The government’s extremely diversified import strategy, the measures taken in recent years to enhance food security and the strength of the US dollar, which curbs imported inflation, are all huge benefits,” said Faisal Durrani, Partner and Head of Middle East Research at Knight Frank.
Most effective action
“By far the most effective measure is the government’s stealth and preemptive decision to freeze the price of 11,000 basic commodities, including milk, bread, meat and poultry. The policy has been bolstered by soaring prices crude oil, which will underpin a sharp upturn in economic growth,” Durrani said.
Citing data from Oxford Economics, Knight Frank points to the expected rebound in Abu Dhabi‘s GDP growth from around 0.5% to just over 6% this year. Dubai’s GDP is also expected to rise by a similar figure, mirroring last year’s growth, boosted by a widespread recovery in global travel and the emirate’s attractiveness as a global vacation hotspot.
Ata Shobeiry, managing director of Zoom Property, said the whole world was continuing its battle against inflation and rising prices. However, the real estate market and the economy of the UAE, as a whole, will not be impacted as much as other countries, thanks to the strategic decisions taken by the government.
“The latest ‘price freeze’ campaign is another great initiative as it will help control prices and minimize the impact of inflation on the economy in general and real estate in particular,” said Shobeiry. Khaleej times In Monday.
Real estate to continue to rise
Atik Munshi, Managing Partner of FinExpertiza UAE, said inflation has hit the world and hardly any sector has stayed away.
“I had mentioned the coming inflation in my article about a year ago. Rising oil and energy prices are adding fuel to the fire. Energy costs affect almost everyone world and all sectors of business; with rising fuel costs, businesses will sooner or later pass the same on to consumers,” Munshi told the Khaleej Times.
He said the UAE was no exception to inflationary trends and the cost of living could rise significantly in the coming months. He said that the UAE real estate witnessed the upward trends before the inflation, but it seems inflation has boosted the same again.
“With the growing resident population, ease of visas, growth-oriented government measures, it is very likely that the demand for housing will increase. This will be the simple calculation of demand and supply. When next quarter or year-end revenue figures are analyzed, they are likely to show growth, but inflation must be taken into account to arrive at actual growth. You have to look under this shroud,” he said.
The economy’s relative positivity is spilling over to business activity levels, with the latest PMI reading for the UAE’s all-important non-oil sector holding at a 12-month high in April as orders fell. continued to increase, but the rate of recruitment appears to have slowed slightly.
“April’s PMI readings indicate that businesses are clearly nervous about mounting cost pressures. Two immediate pressure relief valves are helping to reduce the pace of new hires and pass costs on to consumers. The latter is often seen as a last resort and we don’t see it yet,” Durrani said.
The residential market remains relatively isolated
Elsewhere, rising inflation poses a limited threat to Dubai’s residential real estate market, according to Knight Frank’s analysis.
“Fiscal policy in the UAE correlates with that of the United States, and the recent 50 basis point hike in interest rates to 2.25% means higher spending for mortgage households in the future. , but it’s still comparable to other prime international markets,” said partner Ashley Bayliss. and Head of Mortgage and Debt Advisory at Knight Frank.
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According to Knight Frank, mortgage buyers of villas and apartments currently make up only 18% of Dubai’s residential market, by value. Last year the figure was closer to 40% and in 2007 just over 50% of deals were funded.
“Although this appears to be a decrease in residential mortgage lending, at the end of May almost 38 billion dirhams of financing was granted to all classes of real estate assets. By extrapolating the number of transactions, we have seen so far this year, 2022 could be on track to see the second highest level of mortgage transactions in the last five years for the entire real estate market.The main challenge for banks is to keep pace current market growth,” Bayliss said.
However, for the residential market, Durrani said the bulk of transactions at the high end of the price spectrum are cash purchases, largely due to the relentless influx of ultra-high net worth capital targeting homes. most expensive houses in Dubai. So, with cash remaining king, risk to the housing market is low for now, he said.
Additionally, with Dubai property prices growing this year, which is expected to hover around 5-7% for the mainstream market and 12-15% for the prime markets, residential real estate in the he emirate remains an excellent hedge against inflation,” Durrani concluded. .