The removal of sanctions on Iran could provide a timely lift for the property market in Dubai after it “flattened out” in recent months, according to the property consultancy Cluttons.
The company has published its 2015 UAE property report, which points out that Iranian nationals accounted for 12% of all property transactions in Dubai in 2010. By the first quarter of this year, this figure had dropped to 3%, the National reported on Tuesday.
The head of research at Cluttons, Faisal Durrani, said if sanctions are formally lifted as expected in January or February next year, global companies looking to target the market are most likely to set up shop in Dubai.
The report points out that UAE-Iran cross-border trade stood at 62.4 billion Emirati dirhams last year, and that Iran’s government estimates that its oil and gas sector needs an investment of 734 billion dirhams over the next five years, as well as 18 billion dirhams for aviation.
Durrani said there is already anecdotal evidence of Iranian businesses in Dubai gearing up for growth.
“We have seen Iranian traders who have businesses in the UAE speculatively looking for more office space, retail space or industrial space,” he said. “We have also heard from our banking clients that Iranian clients are seeking loans to fund expansion.
“The expectation is that a lot of those funds will flow through the UAE’s banking system, which will help boost liquidity levels. This will have a positive impact on the real-estate market in general.”
Firms looking for office space will also create more jobs, which in turn will create demand for housing.
“This is a stream that can be linked to Iran that has been missing from Dubai’s real-estate equation for about 10 years since sanctions were first imposed.”
Despite this, Cluttons expects Dubai’s market to remain weak in the short term. Rents have fallen by about 3% this year, and are likely to drop by a further 1.5% to 2% by yearend, it stated in the report.
Abu Dhabi, meanwhile, is facing affordability concerns at a time when economic growth is slowing due to falling oil prices. The report stated that the average annual rent in Abu Dhabi is 204,000 dirhams per property, but the average annual expat income is 199,000 dirhams.
“There is a clear affordability issue that is coinciding with a time when demand is leveling off,” Durrani said. “All the signs suggest we will see slight rent declines over the remainder of the year.”
Cluttons said demand in Abu Dhabi is polarizing, with the top end of the market remaining stable as affluent Emiratis and buyers from neighboring states like the exclusivity that communities such as those on Saadiyat Island offer.
Meanwhile, the recent steep rental growth has forced many expats to look for cheaper properties, which has led to increases in rents in more affordable sub-markets, such as the Al Ghadeer area.
“We are expecting rents to potentially slip slightly. We’ve had rents increase by 16% over the last 12 to 18 months, and that has been well ahead of wage growth over that period,” said Cluttons.
However, a recent report on the Abu Dhabi property market by ADIB/MPM Properties argued that residential rents could continue to rise over the next six months as supply remains tight.
It predicts that 8,244 new homes would be added to the city’s housing stock this year or 2.9% of the total. This represents the lowest level of growth for five years.
