Three Key Foreign Currencies Linked to Dubai Real Estate Price Decline

Phidar Advisory released its Q3 mid-quarter Dubai residential research note. The report shows that residential prices in the third quarter of 2015 continue to decline, compared to the previous quarter. However, the most significant finding was in a statistical analysis of the relationship between currencies and Dubai real estate prices.

“Analysis reveals a significant relationship between three key foreign currencies and Dubai real estate prices,” said Jesse Downs, Managing Director of Phidar Advisory. “Unsurprisingly, the key currencies are the Indian Rupee, Great British Pound and Pakistani Rupee. Changes in Dubai property prices appear linked to fluctuation of these currencies. So, currency trends may help us to understand and forecast local property prices,” she said.

Phidar’s Dubai Real Estate International Demand Index (REIDI) fell significantly in the first half of the year, driven primarily by currency fluctuations, indicating a very low propensity for international real estate investment into Dubai. In H1-15, the midpoint exchange rates for all currencies included in the REIDI are down against the dollar compared to 2014, except the Chinese Yuan and Hong Kong Dollar. This is not a measure of actual capital flows, but a real time indicator intended to assess the propensity for attracting capital inflows into Dubai real estate.

“Sales volumes for apartments and single family homes were down in July compared to the previous month, but marked a surprising increase compared to July 2014” said Ms. Downs. “This is likely due to seasonal travel patterns shifting around the holy month of Ramadan.” she added.

In H1-15, apartment transaction volumes were up 3.0% compared to the same period in 2014, but transactions for single family homes, also referred to as villas, were down 3.2% compared to H1-14. For the communities tracked by Phidar’s House Price Index, transaction volumes were down by 28.2% for apartments and down by 8.6% for single family homes in H1-15 compared to H1-14.

Apartment lease rates decreased a nominal 0.4%, while sale prices decreased 2.7%, pushing yields up to 7.4%. Lease rates for single family homes decreased 1.3% and sale prices decreased 2.6%, which pushed yields up to 4.8%.

“The increase in yield is a positive and necessary trend in Dubai real estate,” said Ms. Downs. “Especially in the context of global volatility, this is part of a healthy and necessary, market correction,” she concluded.