Falling oil prices create headwinds for the UAE real estate market

• Transaction levels falling across Abu Dhabi, Dubai, Sharjah
• Oil price decline impacting job creation affecting real estate
• Affordability and supply levels impacting villa market
• Boost from Iranian investors expected once sanctions lifted
• Rental market weak but strong tourism sector and Expo 2020 boost medium term outlook

With a 54% decline in the price of oil prices during the past 12 months the UAE real estate market is now beginning to feel the effect with property transaction levels falling across Abu Dhabi, Dubai and Sharjah, according to the latest research from international real estate consultancy, Cluttons.

The annual 2015 UAE Property Report reveals that the direct correlation between hydrocarbon revenues and state spending will put pressure on the rate of job creation. A further reduction in is oil prices is also likely once Iran receives the green light to begin oil exports. In turn, this will impact on the rate of office space take up and subsequently, the creation of households and overall residential demand. The impact is expected to be variable across the nation’s three largest emirates. However, the return of an Iranian variable to the national real estate equation could be particularly momentous for the UAE real estate market.

Steve Morgan, Chief Executive, Cluttons Middle East said: “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. These initiatives will likely cause consumer price inflation levels to increase, resulting in a reluctance of tenants to pay higher end rents and families to purchase homes. However, some of the rises may be off-set by the fall in diesel prices, helping to maintain the UAE’s competitive edge, which is unchallenged in the region.

“With the expected lifting of Iranian trades 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. In 2010, Iranian nationals accounted for 12% 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 showed investment from Iranian’s had dwindled to a low of just 3% during the first quarter of 2015.”