Business | Property
House prices in UAE to climb
The escalation of material prices and wages will drive construction costs and help propel house prices higher in the UAE, according to a research note by local brokerage EFG-Hermes.
- By Andrew Shouler, Deputy Managing Editor
- Published: 00:05 February 27, 2008
- With pending supply being delayed, but demand for property buoyant, developers are easily able to pass on higher costs to potential off-plan buyers.
- Image Credit: Gulf News Archive
Dubai: The escalation of material prices and wages will drive construction costs and help propel house prices higher in the UAE, according to a research note by local brokerage EFG-Hermes.
With pending supply being delayed, but demand for property buoyant, developers are easily able to pass on higher costs to potential off-plan buyers, the note says.
Meanwhile, with local interest rates having dropped, real estate demand has been stimulated.
"Taking both cost and demand pressures together, we now believe that both off-plan and secondary market prices will rise significantly higher in 2008 than our previous expectation of 5-10 per cent." Analyst Sana Kapadia declined to give revised figures for the outcome, but agreed that the risks for investors would also rise.
"The persistence of labour shortages, strong demand, and the mandatory adoption of green building codes, health and life insurance are likely to raise costs even further."
Lower interest rates also give the fillip of cheaper finance, as well as the incentive of greater reward in the face of meagre returns on deposits.
As UAE interbank rates have fallen from 4.9 per cent last November to 2.8 per cent today, mortgage rates have declined from 7.9 per cent to 5.8 per cent.
Monica Malek, economist for EFG-Hermes, made it plain that prospective inflation applies to prices rather than rental costs, which are subject instead to separate forces of supply and demand.
"In fact, we expect rental inflation to be negative in Dubai in 2008. Anecdotally, because of negative real interest rates, people are buying houses for investment purposes [which] adds to rental supply. For the UAE as a whole, consumer price inflation will nevertheless be driven by rental inflation in Abu Dhabi, which may be in the region of 30 per cent this year."
The report's assessment is in line with work by other analysts.
"A combination of strong demographic growth, negative real rates and increasingly available mortgage finance will boost demand at the same time as delivery delays look likely to moderate growth in supply," said Simon Williams, Chief Economist, HSBC Middle East.
"Taken together, those factors point to a very supportive [house] price environment."
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