Half-year house sales prompt cautious optimism in Dubai

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Transactions of villas and apartments were so strong in the first five months of this year that analysts believe Dubai can withstand the battering that global inflation usually brings.

An estimated total of AED61.9bn of property deals were completed between January and May, suggesting that the emirate’s market is fending off any threat from record increases in inflation, according to real estate consultancy Knight Frank.

Global inflation is projected to increase to 6.7 per cent in 2022, over twice the average of 2.9 per cent recorded during 2010 to 2020, while headline inflation in the US has reached the highest level in four decades.  

Knight Frank noted that the UAE’s fiscal policy correlates with that of the US, as the dirham is pegged to the US dollar.

The recent 50 basis point hike in interest to 2.25 per cent does mean higher outgoings for mortgaged households, partner and head of mortgage and debt advisory Ashley Bayliss said, but this “remains comparable with other international prime markets”.

Mortgaged buyers for villas and apartments account for just 18 per cent of Dubai’s residential market, by value, at present. Last year, the figure was nearer 40 per cent and in 2007 just over 50 per cent of transactions were financed.

“This appears to be a decrease in residential mortgage lending,” Bayliss said.

“However, the bulk of deals at the top end of the price spectrum are cash purchases, in large part due to the unrelenting influx of ultra-high net worth capital targeting Dubai’s most expensive homes.

“So, with cash remaining king, the risk to the housing market is low for now.”

There are other reasons why global inflationary increases pose only a limited risk for Dubai’s buoyant residential property market, Knight Frank said.

“The government’s extremely diversified imports strategy, steps to boost food security in recent years and the strength of the US dollar, which is curtailing imported inflation, are all huge positives,” said Faisal Durrani, partner and head of Middle East research.

“There are many reasons for cautious optimism when it comes to containing inflation in the UAE.”

One such measure is the government’s pre-emptive stealth move to freeze the price for 11,000 basic goods, including milk, bread, meat and poultry.

“The policy has been bolstered by the surge in crude oil prices, which is going to underpin a sharp turnaround in economic growth,” Durrani said.

Dubai and Abu Dhabi are forecast to see rebounds in economic growth after a sluggish two days on the back of the coronavirus pandemic, with around six per cent GDP growth expected in 2022, according to data from Oxford Economics.

Growth is being driven by a pick-up in global travel and the UAE’s appeal as a holiday hotspot, as well as renewed business confidence and activity in the UAE’s non-oil sector, which is all helping to boost the property market, Knight Frank said.

House price growth in Dubai this year is expected to hover at around 5-7 per cent for the mainstream market and 12-15 per cent for the prime markets, it added.