UAE Housing Market
UAE Housing Market
After Saudi Arabia, the UAE is the second largest economy in the Middle East. It is also among the wealthiest nations in the region based on GDP per capita with its estimated price in 2015 reaching $363.7 billion, and a real GDP growth rate of about 3.2 per cent for the past two years. The UAE owns about 6% of the global oil reserves, and its proven natural gas reserves are seventh in the world. Petroleum exports of the country were $126 billion in 2014. It is expected that oil and gas will continue to be strategic materials for the UAE’s economy since they account for about two-thirds of exports and generate most governmental revenues.
However, the UAE has already taken important steps towards economic diversification and moving away from the oil and gas-centered economy: currently, about 70 per cent of GDP is generated by other economic sectors. Moreover, the UAE also aims to develop a nuclear energy program for civil purposes with a plan to establish four new nuclear power reactors by 2020, and the first one is due to launch in 2017. Additionally, the Emirates focuses on the production of renewable energy for both domestic use and for export (Australian Government: Department of Foreign Affairs and Trade, n.d.).
The UAE population is nearly nine million. In terms of economics, it greatly depends on its expatriate workforce that constituted about 80 per cent of the UAE population in 2012. To create more jobs for citizens, the UAE government has focused on additional funds for job market and infrastructure expansion, in particular, as a part of preparation for hosting an Expo 2020 in Dubai. The Emirates is also famous for its free trade zones attracting foreign investors as they offer full ownership and no taxes. There are more than 17,000 companies in the free zones (Australian Government: Department of Foreign Affairs and Trade, n.d.).
In order to study the economy of the UAE, it is also necessary to investigate the main economic indicators and their dynamics for this country. GDP has a growing tendency: it increased from $341 billion in 2011 to $391 billion in 2014. GDP per capita during the same period grew from $40,072 to $42,067. In 2015, annual economic growth rate was 3.1%. At the same time, the unemployment rate showed a declining tendency falling from 4.1% in 2011 to 3.6% in 2014. The public debt in percent to GDP declined from 17.6% in 2011 to 15.7% in 2014. Furthermore, exports grew from $302 billion in 2011 to $371 billion in 2014 while imports increased from $195 billion in 2011 to $240 billion in 2014 (Focus Economics, 2016).
The housing industry is an important part of the UAE economics. As the country is rich and has growing income, the sales of real estate were in most periods high and had a growing tendency which continued until 2014-2015 when the sales started dropping because of the persisting challenges in oil market and sales (Townsend, 2015). Nevertheless, housing industry remains very important for the economy of the UAE: in 2014, it generated 33.47% of total employment in construction sector and 11.23% of employment in real estate business (The National, 2015). Thus, housing market of the United Arab Emirates is facing difficulties now because of general economic problems of oil countries. In this paper, its current state and future forecasts will be analyzed with a particular focus on prospects for Expo 2020.
Results and Discussion
As it was mentioned above, the UAE property sales and prices has had a growing trend for long years. In 2013, it was expected that they would continue rising, and there were several reasons for such a forecast. First, the UAE had a growing economy with growing GDP and other indicators. It contributed to housing prices increase, and that tendency was expected to continue for a long period. Second, the UAE has growing population, and the number of people continues to increase. Thus, experts expected that housing prices and sales would continue growing as well to meet the demand. Third, the sales were expected to grow because of the prices, as most customers preferred buying real estate now to waiting for some time when it becomes more expensive. Finally, upcoming Expo 2020 was also expected to influence sales of real estate positively (Kapur, 2013).
Nevertheless, the situation changed in 2015, when the global oil prices started falling. Until the early 2016, the UAE officials reported that low oil prices did not influence the economy of the country because it was diversified.
However, economic statistics released in April 2016 showed that the situation changed. The purchasing power index dropped, and the expansion of most industries excluding the oil industry was slowing down. Moreover, employment was declining, too. Some challenges were noticed in the stock market. In such situation, the housing market suffered as well. According to a note from Standard & Poor’s, housing prices in the UAE are expected to decline an average 10 percent of their value by the end of the current year, and it the decline will double in 2016 when oil prices continue to fell even lower. Additionally, the note explained that, the demand for real estate in the UAE was not expected to grow despite more favorable prices that lowered. Such tendency is expected because the real estate investors and homebuyers are waiting until the prices decrease even more. One more reason is that higher affordability of real estate caused by the oil price decline is not enough to stimulate the demand for houses. In addition, good performance of the U.S. dollar made the UAE real estate prices quite high for non-dollar investors (Kennedy, 2016).
Despite the hard situation with real estate market, the prospects for 2016 are not bad. In Abu Dhabi and the whole UAE, many real estate projects are planned to start in the nearest years. However, the growth will not be as fast as in previous years. Most third-quarter 2015 reports state that only 2 to 3 per cent is expected to be built in relation to the total housing stock per year during the next 2-3 years. Demand for real estate remained strong, even in situation when many potential buyers were waiting for further prices decline putting the purchase on hold. It happened mostly due to the growth of population. According to the Statistics Centre Abu Dhabi, the average rate of population growth per annum in the UAE from 2005 to 2014 was 7.6 per cent. If the tendency continues, the growing demand in the housing market will continue. The oil prices influenced demand and supply for new homes, but the impact was not as significant as some experts had predicted, because the economy of the Emirates shifted from oil-based to more diversified one.
Currently, the sales of real estate declined because buyers are expecting the prices to decline further (Crompton, 2016). In the end of 2015, about 6,000 new homes were empty in Dubai as there were problems with their selling in such poor market conditions. However, when price falling finally stops, a new boom of real estate sales is expected (Barnard, 2015). At the same time, The U.S. Federal Reserve System is going to increase interest rates by a further 0.5 per cent during 2016, and the UAE is expected to do the same due to the dirham-dollar correlation. Thus, borrowing and buying houses will become more difficult. In general, the future of housing market depends on many factors such as population, interest rates, and oil prices, and it is quite difficult to predict the situation certainly (Crompton, 2016).
The upcoming Expo 2020 is likely to influence the UAE housing market, too. As analysts insist, the Emorates’ construction market, despite some problems with real estate sales, remains mor or less stable at a faster pace than the whole economy, due to increased infrastructure spending in Dubai. BMI Research forecasted that the UAE construction market would grow by 6.6 per cent in the year of 2016, and it is more optimistic than the IMF’s prediction of 2.6 per cent growth for the whole UAE economy. The value of the UAE’s construction industry will grow up to Dh181 billion in 2017 compared to Dh162 billion in 2016, BMI Research stated. Moreover, the organization predicted increase of the industry for more than 6 per cent from year 2017 to year 2019, as the UAE will construct many buildings specially for Expo 2020. Nevertheless, it also predicted a decline of construction industry by 2-3 percent annually after 2020, as the demand for new buildings will lessen. The major projects that are due to completion before Expo 2020 include Route 2020 Metro extension in Dubai and the expansion of Jebel Ali Port as well as Al Maktoum Airport (Fahy, 2016).
Expo 2020 is expected to bring many improvements for real estate industry of the UAE with 277,000 new jobs to be offered in hospitality and construction sectors for both qualified and unskilled. Additionally, infrastructure spending of the government is planned to grow in order to support different construction projects related to Expo 2020 preparation. As a result, real estate and rental prices in the Emirates are expected to grow again (Emirates NBD, 2013).
To conclude, the housing industry is among the most important ones for the UAE. It had a growing tendency during recent years offering a large amount of different jobs. There are many factors that contributed to the development of housing market and its growth. First, the UAE is a country with growing GDP with a growing demand for real estate. Second, the UAE is a country with growing population owned to both due to natural growth and immigration. Thus, a growing number of citizens contributed to higher demand for real estate and sales of homes. Third, there were other factors that impacted the sales growth of real estate and high demand such as low interest rates, increased governmental spending, and growing oil prices. This tendency continued until 2015, when oil prices declined greatly influencing the whole UAE’s economy negatively: this is when the demand for real estate fell, causing decline in prices as well.
It is hard to predict the future of the housing market in the country certainly, as it depends on many factors. Some factors that influence it negatively include higher interest rates in 2016. Nevertheless, other factors are more favorable for the housing market, and they are likely to outperform negative ones. The population is forecasted to grow further, and it will contribute to growing property demand. The prices for real estate are likely to stop declining, and the demand will grow again. Moreover, the UAE’s economy is becoming less dependent on oil prices, and their decline will not influence demand for houses significantly. Finally, the upcoming Expo 2020 is predicted to be very positive for the real estate industry because the Emirates is planning to construct many buildings before the event with many projects are ready for launching. Thus, the housing market of the UAE has a good future.