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If there is debt attached to the property then it is true that this will also increase in value in US dollar terms. But since debts are almost always smaller than the value of a property against which they are taken, the property owner will still be a net winner from the revaluation of the dirham.
The position is more complex for new buyers. If they are domestic buyers with their income and savings in UAE dirhams then the revaluation makes no difference.
Price hike
But for foreign buyers the revaluation of the UAE dirham would mean a price hike in their own currency. Rising prices do not usually encourage new buyers - although it is often the case in property markets that increases in prices do attract buyers who become even more convinced that investment is a good idea.
So the negative of a real estate price rise in dollar terms has to be balanced against the positive effect that might have on the psychology of the buyer. In short, if people can see rising prices they tend to believe that they could go higher.
Moreover, there is some logic in this belief as a revaluation of the dirham might well not be the last such revaluation in an oil-rich country like the UAE with an economy totally removed from the credit crunch now causing the US economy major pain.
It might well be the case that real estate buyers note how current owners have benefited from a one-off revaluation bonus and decide that they would like to be in the market for the next one!
Safe option
This also comes at a time when global real estate investors are finding their options more and more limited as a succession of traditionally 'safe' markets have come unstuck. Even in the UK prices have begun to falter, joining markets like Ireland and Spain along of course with the US.
Given that the UAE is the place where the sun is still shining and the oil boom still raging, and where house prices are cheaper than many markets that are now in decline - both in absolute and relative terms - it is therefore unlikely that dirham revaluation would have much impact on the Dubai house price market, and it might even bolster confidence at a time when other real estate markets are in deep trouble.
Longstanding Dubai property watchers will also note that provided the dollar-peg remains then lower interest rates are on the horizon which will likely greatly outweigh any negative impact of revaluation.
See also:
Better times ahead for Middle East markets?
Revaluation should be top of UAE's agenda to beat inflation
Dubai strives to sustain growth
Peter J. Cooper
