Property markets in the UAE have begun to feel the pressure of declining oil prices, according to a new report by Cluttons.
As prices plummeted, trading at less than $50 per barrel – half the price compared with a year ago – the real estate markets in Abu Dhabi, Dubai and Sharjah have seen a drop in property prices and rents.
Hydrocarbon revenues account for the largest share of the UAE’s economy, so the downward trend in crude oil prices had an apparent impact on government spending, which, in turn, put pressure on the rate of job creation in the country.
This has further affected the rate of office space growth and, subsequently, the creation of households and overall residential demand, reveals Clutton’s annual 2015 UAE Property Report.
“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,” says Steve Morgan, chief executive, Cluttons Middle East.
He adds that these initiatives will cause consumer price inflation levels to increase, making tenants reluctant to pay higher-end rents and discouraging families from purchasing homes.
The report also forecasts a further reduction in oil prices following Iran’s deal with world powers to give up its nuclear power in return for a long-awaited lifting of sanctions imposed by US and the United Nations. This deal would give a green signal for Iran to export oil from its huge cache of reserves.
However, the report says Dubai is expected to benefit from the nuclear deal, because it would make the emirate’s property market more attractive to Iranians.
“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,” he added.
In 2010, Iranian nationals accounted for 12 per cent of Dubai’s real estate transactions, positioning them in fourth place behind Indian, British and Pakistani nationals. Data from the Dubai Land Department on investment volumes has showed that the investment from Iranians had dwindled to a low of just three percent during the first quarter of 2015.
International sanctions lawyer Sarosh Zaiwalla says the UAE will be the first country to benefit from the historic Iran deal, as both countries have maintained good trade relations and they enjoy the advantage of territorial proximity. “But, for the last two years, the UAE has decided to strictly comply with the sanctions requirements… The deal will help open up the trade routes and will make the trade between the neighbours better,” he says.