Analysts say the continuing oil slump is likely to further impact upon hit house prices in Dubai, already weakened due to the imposition of mortgage caps and a hike in property transaction fees.
According to JLL, villa prices in Dubai fell 1 per cent during the final three months of 2014 while apartment sales remained flat. Rents, too, for apartments and villas remained static during the final quarter of the year.
“The impact of the slump in global oil prices is likely to have a further impact on the real estate market in Dubai, largely through sentiment rather than through any actual decline in government spending,” says Craig Plumb, the head of research at JLL’s Dubai office.
“In Dubai a lot of buyers traditionally buy real estate using money that has come from oil funded economies such as the UAE, Saudi Arabia, Iran and Russia,” he adds. “So unlike in the West, the fact that oil prices have fallen and could perhaps provide consumers here with a little more disposable income is likely to have much less of an impact than everything else and we expect the overall effect on the housing market to be negative.”
Rashpal Heer, an associate director at DTZ, agrees. “The market is going through a period of correction and, whilst difficult to quantify the full extent, we expect the fall in oil price to further impact the property sales market in the short to medium term in the UAE, particularly Dubai, as domestic, regional and international investors from key oil dependent markets reign in investment,” he says. “We expect the residential market will be the greatest affected, in particular residential off-plan sales at recently launched or soon to be launched developments,” he adds. “The commercial and industrial sectors are likely to be the least impacted as market fundamentals are expected to remain good in the long term.
“The lower oil price will benefit the economies of non-oil producing countries such as India which, given that Indian nationals are big investors in Dubai real estate, may lead to higher levels of investment, and will be reflected in greater levels of tourism from these countries,” Mr Heer says.
Along with other economists he predicts that, if it is sustained, the global fall in oil prices could well fuel another property boom in the US, the United Kingdom, Europe and China and Japan.
“The economic consequences of falling oil prices are unequivocally good, for the economy and for real estate fundamentals of western countries,” he says.
“The majority of the boost to growth would come through stronger consumption but companies would also benefit from lower input costs. With a lag of 18 months or so we would expect to see higher rents than previously forecast across the board and particularly in retail. The residential sector will also receive a boost, as households gain the ability to service slightly higher mortgages.
In December, IMF economists predicted that if the fall in oil prices persists, then global economic activity this year could be boosted by up to 0.7 per cent in 2015 and up to 0.6 per cent next year with most growth predicted for the West as well as non-oil producing developing nations such as China and India.
Original report published in the Dubai-based The National newspaper