World Economy

Oil Slump Rattles UAE Real Estate Markets

Oil Slump Rattles UAE Real Estate Markets Oil Slump Rattles UAE Real Estate Markets

The sharp decline in oil prices over the past one year has started to impact the UAE real estate market in a big way, with property transaction levels falling across Abu Dhabi, Dubai and Sharjah, says a report.

A further reduction in oil prices is also likely once Iran receives the green light to begin oil exports. In turn, this will impact on the rate of office space take up and subsequently, the creation of households and overall residential demand, stated top international real estate consultancy Cluttons in its latest report, TradeArabia reported.

The impact is expected to be variable across the nation’s three largest emirates, it stated.

Cluttons in its annual 2015 UAE Property Report pointed out that the direct correlation between hydrocarbon revenues and state spending would further put pressure on the rate of job creation.

Steve Morgan, the chief executive, Cluttons Middle East, said: “We see a number of economic factors at play which will impact the level of transactions in the near term. The decline in oil prices has seen the government take necessary fiscal measures to boost its financial position, including the deregulation of fuel prices and the much talked about future move towards the introduction of VAT and corporation tax.”

“These initiatives will likely cause consumer price inflation levels to increase, resulting in a reluctance of tenants to pay higher end rents and families to purchase homes. However, some of the rises may be off-set by the fall in diesel prices, helping to maintain the UAE’s competitive edge, which is unchallenged in the region,” observed Morgan.

“With the expected lifting of Iranian trade sanctions, it is our view that Iranian nationals will seize the opportunity to make significant real estate investments in the UAE, particularly Dubai, pushing them back up the buyer nationality league table,” said the expert.

“In 2010, Iranians accounted for 12% of Dubai’s real estate transactions, positioning them in fourth place behind Indians, Britishers and Pakistanis. Data from the Dubai Land Department on investment volumes showed investment from Iranians had dwindled to a low of just 3% during the first quarter of 2015,” he added.

Commenting on the residential market, Cluttons said in Abu Dhabi, the house prices slipped by 0.2% in the second quarter of 2015, the first contraction since the third quarter of 2012, and leaves the current average house price standing at Dh1,336 ($364) per sq ft.

Demand remains stable in the top-end luxury market according to the report.

This is driven by affluent Emirati and (P)GCC buyers continuing to home in on schemes based on perceived exclusivity, while the large expat population that is being squeezed out of the rental market due to rampant rental growth, is targeting more affordable properties that are perceived as better value for money, said Cluttons.

The property expert pointed out at a 1.5%-rise in average rents, registered during the second quarter, pushing annual growth in the capital up to 3.9%.