UAE property to get pricier: Here is why
* Strong dirham value will likely weigh on the UAE’s real estate sector
* Dubai property prices made single-digit declines in 2016
* Raising interest rates typically strengthens a currency and the UAE central bank will mirror any moves by the Fed to maintain the dollar peg
A stronger dirham value will likely weigh on the UAE’s real estate sector this year, a Dubai-based property online portal predicts.
The dollar is reaching a five-year high against the euro, and the dirham – which is pegged to the dollar – hit a 31-year high versus the pound in January. This further increases the value of the dirham against other regional currencies. Further increases are expected as traders bet a Donald Trump presidency would lead to higher inflation and further rate hikes by the Federal Reserve.
“A stronger dollar makes UAE property more expensive and less attractive to both locals and non-locals alike,” Lukman Hajje, Propertyfinder Group CCO, said.
Citing propertyfinder.ae data, Hajje noted that UAE property prices have been declining with the strengthening of the dollar.
“We saw this in the second half of 2016 in the Brexit aftermath as British and European expats shifted their attentions back to their home markets which suddenly became more attractive, in many cases liquidating UAE property assets to take advantage of favorable currency exchange,” Hajje added.
According to the data, Dubai property prices made single-digit declines in 2016, but the dirham rose against the pound and achieved gains versus the euro and Indian rupee, this allows property sellers to still enjoy a forex profit on over any capital increases. However, a weaker pound made UK property relatively cheaper for buyers from the GCC and other countries.
According to Hajje, more of this is anticipated as the dollar further strengthens. This is likely as the US Federal Reserve warns it expects to make three further interest rate hikes throughout 2017. Moreover, president-elect Donald Trump is looking to deliver on his promise to accelerate US economic growth and infrastructure spending.
Raising interest rates typically strengthens a currency and the UAE central bank will mirror any moves by the Fed to maintain the dollar peg – policy makers in Abu Dhabi immediately hiked UAE interest rates following the Fed’s most recent rate rise in December.
“While the fundamentals of the UAE property market remain strong, restrictive lending practices make the market even more costly to get into,” adds Hajje.
“This takes a big chunk of potential buyers out of play, particularly those living and working in the UAE who would like to get out of the endless rent spiral but just cannot afford to.”