UAE Real Estate 2016 mid-year market review

(by Dana Salbak)
What’s happening on the global and local macro level?
In its World Economic Outlook titled ‘Too Slow for Too Long’ (April 2016), the International Monetary Fund (IMF) reduced its global growth forecasts to 3.2% (from 3.4% in January 2016). Despite that, growth forecasts remain higher than 2015 levels (3.1%) and are projected to increase to 3.5% in 2017. While growth is forecast to strengthen, the slowdown in China, further declines in commodity prices, and the slowdown in investment and trade continue to represent downside risk to global growth.

On the local level, the impact of lower oil prices resulted in the revision of government budgets, reprioritisation of spending and removal of energy subsidies. These changes have resulted in sizable shifts in relative prices since 2011, with headline inflation rates increasing from 0.8% in 2011 to 4.0% in 2015. Coupled with the appreciation of the US dollar, household disposable income tightened and purchasing powers reduced.
How has the local real estate market been impacted?
Against this backdrop, the real estate sector in the UAE witnessed sluggish growth during the first half of 2016. The slowdown in transactional activity continued to weigh on the performance of the residential market, with sale prices softening further in Dubai and stabilizing in Abu Dhabi. While hotel occupancy rates remained healthy, average daily rates and revenues came under pressure on the back of softening demand.
Meanwhile, the retail market saw no noticeable increases in average rents as a strengthening US dollar and high inflation rates impacted tourist and domestic spending respectively. Similarly, growth in the commercial market (office and industrial) was muted as corporates and industries continued to scale back expansion plans amid increasing economic uncertainties.
What are the key factors of influence that will drive the market forward?
• UAE’s safe haven status
• Government commitment to spending on infrastructure and development projects
• Availability of more sophisticated investment grade product (e.g. schools, hospitals)
• More transparent processes and procedures
• Stronger growth projections in 2017

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