When considering the outlook for Dubai’s property market, there are definitely two sides to the coin. I always try my best to objectively review both sides of that coin but through this public medium, perhaps rather unsurprisingly, I will focus on the positives.
There are four pillars of growth that I would like to highlight:
- A weaker US Dollar (UAE Dirham)
- Expo 2020
- Higher oil prices
- Population growth
The US Dollar is widely recognised as one of the key contributing factors to the erosion of value in Dubai’s residential property market that started to take hold in the summer of 2014.
It is therefore not a surprise that the US Dollar index (a measure of dollar strength as measured against a basket of prominent foreign currencies) shows the US dollar appreciating in value by 29% from the end of Q1 2014 until the beginning of 2017.
This is a period of significant decline in Dubai’s residential property value and it is not a coincidence that it coincides with the meteoric rise in US Dollar strength. However, on a positive note, the US Dollar index has weakened by circa 12% from the beginning of 2017 to April 2018 and more specifically, it weakened by 6% from November 2017 to April 2018.
There will be a lag effect but I expect the weakening US Dollar to act as a stimulus to the market as we progress through 2018.
The question is whether or not this market stimulus will be strong enough to counteract some of the headwinds associated with rising interest rates.
In 2020, Dubai will be hosting the World Expo
, when millions of people from around the world will come together to share ideas and innovations. But it won't all be over once the Expo is finished. Any event of this size has long-lasting benefits, and the legacy plans include stimulating a knowledge economy and drawing big businesses towards our city after the event.
Huge amounts of money are being invested in the infrastructure of Dubai to prepare the city for Expo 2020. This form of fiscal stimulus creates employment, which has the associated “trickle down” benefit to the wider economy in the short term. In addition to this, as the newly formed capacity within the economy is monetized, it will increase aggregate demand, attract labor, fuel population growth and contribute to a broadening of Dubai’s economic base. These economic fundamentals are inherently good for Dubai’s property market, with the true benefit being felt in the years after 2020.
The price of oil declined 75% from June 2014 to June 2016 and although it rebounded from a 2016 Summer trough, it remained in a low range until the summer of 2017. So it’s no coincidence that the oil price decline directly correlates with the loss of value in Dubai’s property market during the same period.
However, on a positive note, since the Summer of 2017, we have seen the price of oil appreciate by 54% and although we should avoid complacency, it looks like this trend could continue. As is the case with the weakening of the US Dollar, there is a lag effect associated with rising oil prices but it would be reasonable to assume that higher oil prices will translate to better economic conditions that will act as a stimulus to the property market and hopefully another strong counterbalance to the rising interest rate and supply side headwinds.
Spend five minutes playing with the interactive population clock on the on the Dubai Government Website
and you will realise that a trend that started in the 1970s has continued for nearly half a Century. It shows a population of 256,000 in the 70s, 350,000 by the mid 80s, 650,000 by the mid 90s, 1.2M by 2005, 2.3M by 2015, 2.7M in early 2017 and over 3M by April 2018.
It’s tricky, and subjective, to accurately forecast population growth over the longer term but some population forecasters expect over 5M by 2027. But it can be safe to say that population growth has a simulative impact on property prices and the increased demand will unquestionably help soak up the supply of new residential projects.
There’s certainly plenty to talk about on both sides of the coin and I’m often asked if I think it’s the right time to buy in Dubai
. The answer is yes and no, as personal circumstance plays a huge part in the answer. What is right for one person might be wrong for the next.
However, I certainly don’t want to be accused of sitting on the fence, so I’ll say this – if the mortgage cap regulations are relaxed to allow higher LTV mortgage products
to return to the market, then watch closely for the emergence of an upwards trending cycle in Dubai’s residential property market. This could become that 5th pillar of growth necessary to counterbalance any remaining headwinds.