Prospects for real estate along the Belt and Road Initiative for the UAE
Following is the New Frontiers Report by Knight Frank. This edition of the report tracks the prospects for real estate along Belt and Road Initiative (BRI) – China’s 2013 initiative to provide a new platform for multilateral cooperation to create new trade routes.
For centuries, the legendary Silk Road from the ancient Chinese capital of Xi’An provided a two-way link with bustling trading centres as far away as Rome and Malacca. Despite intermittent stoppages of this vibrant trade route, fast forward to the 21st century, China has become the world’s largest exporter, with goods and services totalling $2.2 trillion in 2016.
The Belt and Road Initiative (BRI) was launched by China in 2013, with an aim to revive the great Silk Road as well as provide a new platform for multilateral cooperation to create new trade routes, economic links and business networks. Six economic corridors have been identified from China to Central and South Asia, the Middle East and Europe (the Silk Road Economic Belt) and, along a maritime route, from Southeast Asia, Oceania to the Middle East, Africa, and Europe (the 21st Century Maritime Silk Road).
Spanning across 69 countries and encompassing around 60% of the world’s population and 40% of global GDP, the blueprint is also a collection of interlinking trade deals and infrastructure projects, set to be mutually beneficial to BRI countries and China. As one of BRI’s goals is to further stimulate Chinese economic growth, expanding demand overseas will be crucial as the project will open new markets for Chinese goods and services, shoring up the country’s economy against any potential slowdown in domestic demand as well as the potential rise of protectionism in other countries.
A significant number of participating BRI countries are undergoing rapid modernisation and urbanisation leading to soaring demand for roads, railways, ports, airports, pipelines, and technology infrastructure. In addition to infrastructure investment, the increased connectivity of some of the less developed markets will lead to increased commercial opportunities, helping integrate these nations with the wider, global economy.
Funding for this vast initiative is coming via a number of routes, including multilateral sources such as the China-led Asia Infrastructure Investment Bank (AIIB), the Silk Road Fund, in addition to allocations from the large state-owned banks. Ratings agency Fitch has estimated there to be US$900 billion of infrastructure project finance pledged to the initiative.
Middle Eastern countries, particularly the Gulf Cooperation Council (GCC) countries, over recent decades have had strong trade links to China, particularly as one of the main providers of commodities and natural resources to China, along with its critical access to Africa and Europe.
The GCC member nations are eager to transform their economies to reduce over-dependency on oil and gas. This provides fresh prospects for Chinese investors, especially in the real estate, high-tech and energy sectors. Over this time period the UAE has become the favoured destination of Chinese Capital.
However, China and the United Arab Emirates’ (UAE) partnership is not a new story, with Beijing and Abu Dhabi first establishing a formal diplomatic partnership in 1984. In recent years, China and the UAE have continued to strengthen their bilateral relations, these efforts have resulted in China becoming one of the UAE’s major trading partners. With further integration planned, we expect the relationship to flourish further in the future.
Over 4,200 firms have set up base in the UAE, a gateway to access not only the Gulf countries but also Africa. A focal point for Chinese investment has been the UAE’s most populous emirate – Dubai. The signing of a MoU at Dubai Week in China is a case in point with countries looking to enhance trade and investment cooperation. General trade levels between Dubai and China now surpass those that Dubai has with India, USA, Saudi Arabia and Switzerland. The Dubai International Financial Centre (DIFC) has played a central role in this success story; the offering of independent regulators and judicial systems has already attracted many of China leading financial firms, especially with an agreement signed with the Shanghai High People’s Court to foster further closer cooperation and reinforce commercial links for more secure trade.
Increased trade has also paved the way for an increase in tourism and real estate investment. The number of Chinese tourists increased by 60% in the year to Q1 2017, ranking them as the fourth largest nationality to visit Dubai, up from eighth in the same period a year earlier. In the first six months of 2017, Chinese investors registered as the fourth most active real estate investors in Dubai, up from sixth in the same period a year earlier. China’s Cosco Shipping Ports will invest $400 million in building a container terminal in Abu Dhabi as the emirate aims to expand trade with the world’s second largest economy. Dragon City in Dubai, developed by Nakheel, has more than 3,000 shops managed by 1,700 Chinese traders and receives 65,000 visitors daily. Dragon Mart in Dubai is the largest trading centre of Chinese products outside of China.
The ties between China and the UAE are expected to grow further in the coming years as Dubai strengthens its position as a global hub for trade, travel and investment ahead of the Dubai Expo 2020, hence creating more opportunities for Chinese businesses to use Dubai as a platform for growth and expansion. These factors provide a strong platform for the BRI to succeed.
Lower oil prices, higher interest rates and a strong dollar have underpinned the slowdown in GDP growth over the last two years. As the economy adjusts to the new norm in oil prices and diversifies to cut its reliance on crude oil revenues (2030 Dubai Industrial Strategy), the UAE’s GDP growth is expected to gain momentum in 2017 (+2.7%) and 2018 (+3.3%) in the run up to Expo 2020. We have started to see market sentiment in real estate stabilise in the first half of 2017 and start to turn positive at the back end of 2017.