A study released by Dubai Chamber of Commerce ‘&’ Industry (DCCI) shows the consumer confidence in the UAE economy has risen as they start to embrace the idea of an economic recovery while another study indicated that the fall in Dubai’s property prices and rental costs has come to the relief of many residents and businesses alike. UAE consumers feel the country is now driving in the recovery lane
The study derived from the Nielsen Global Consumer Confidence Index survey revealed that following a record low in March, consumer confidence levels have risen as almost half of consumers surveyed expected the country to emerge from the current downturn in the next 12 months. A total of 87% of consumers questioned in survey said they believed they are in an economic recession of which 45% are confident the country will emerge from it in the next year, a 13% hike from the company’s last survey in March.
The survey suggests that consumer confidence in the UAE rose 4 index points to 93 in June (out of a possible 200 points), from 89 in the last survey conducted in March, though still down from 110 points in the second half of 2008. However, despite the rise in confidence, UAE consumers remained cautious about job security, with the state of the economy weighing on their spending habits.
According to the Nielsen survey, in March 2009, 32% of UAE consumers thought the recession would be over within a year but in June 2009, 43% said they expected the recession to be over before the middle of 2010. Positive economic news and growing consumer optimism in the past few months have without doubt led consumers in the UAE to believe that economic recovery will come sooner rather than later. This has led to the UAE now being ranked the seventh most optimistic country in the survey.
HE Eng Hamad Buamim, Director General of DCCI, maintained that these findings affirm the belief that the country is on the path to recovery. The consumer confidence in the economic recovery is a strong indicator that the worst is over. Meanwhile, the overall decline in rental and property prices has definitely improved the Emirate’s business competitiveness as Dubai’s exports in the second quarter registered a rise as did the number of exporters. All these are tell-tale signs of the economic recovery which will soon come around – it’s only a matter of time, said Buamim.
The survey further revealed that globally, consumer confidence rose five points to 82 in June, from 77 points in March this year. The emerging markets recorded the greatest jumps in consumer confidence levels in the past three months, with consumer confidence in India jumping 13 points, and climbed 9 points in Japan, South Korea, Hong Kong and Indonesia. The only exceptions to this upswing were in the US and New Zealand, which held flat in the second quarter, with Germany the only country to register a decline of one point.
On the whole, this is a major turn in direction point for the UAE economy and indicates that the country is well on track to make a significant bounce back from the declines experienced particularly in the real estate and banking sectors in the first half of this year. Looking ahead, this is one of the strongest indicators of a global consensus among consumers that the worst is over. The UAE consumers are clearly of the view that they are driving in the recovery lane now.
Another study on the Dubai realty prices indicated that the fall in Dubai’s property prices and rental costs since the last quarter of 2008 has come to the relief of many Dubai residents and businesses alike. Some commentators have suggested that a lower consumer demand as well as the entrance of new housing stock into the market has pushed rental prices down by 20%-30% since the beginning of 2009. As a result, individuals and businesses are seeing this as an opportunity to relocate as a reduction in real estate prices has meant that they can purchase/rent units which were beyond their financial means 12 months ago.
Although many individuals and businesses that currently own units who are planning to relocate will be forced to accept a lower offer on their current property, the anticipated price reduction on the new, larger property is likely to more than compensate them for the loss on their current home. With the drop in rental prices, there has been growing interest among tenants in moving out of shared accommodation (which they have been forced to live in due to high rental costs) into single occupancy units. It has come apparent that when tenancy contracts expire, tenants are moving away from the outlying, low-cost developments in Sharjah into more affordable locations within Dubai.
Dubai is also tempting individuals and businesses away from Abu Dhabi where rental costs are much higher due to the limited housing stock. Thus, rather than pay higher rents, many prefer to take the 250km round trip every day in order to benefit from the fall in unit prices in Dubai.
Total credit extended to the UAE real estate sector has been growing at a double digit growth rate. The latest published figures from the UAE central bank reveal that the real estate mortgage loans stood at AED115.7bn in September 2008 compared to AED58.8bn at the end of 2007, a growth rate of 96.6%. The UAE government has responded promptly to the tightening in credit conditions by introducing policies such as pumping AED120bn into the financial sector back in October 2008, aimed at stabilising the market and restoring investor confidence.
Overall, the decline in rental and property prices as well as the new supply of both residential and office space in Dubai has improved the emirate’s business competitiveness. This will undoubtedly assist Dubai’s recovery from the economic downturn in the coming months ahead.
