Dubai: More than the oil price situation, the state of the job market in the UAE could have a decisive say in how the property market fares this year. Add to that the other uncertainties stemming from Donald Trump’s policies, the still unresolved situation over Brexit and currency volatility.

“In an expatriate-driven labor market, net job growth almost immediately boosts residential demand,” states a new report from Phidar Advisory, which offers an overview on real estate prospects this year. “Now, net job creation appears stagnant — but (new home) supply keeps growing slowly, but steadily.

“In the mid-high to high-income brackets, net job growth appears stagnant to negative, yet most of the recent new supply targets this segment, amplifying the nominal aggregate supply glut.”

As of now, there is no clear marker on whether the job situation has stabilised or continues to record more lay-offs. Through the last quarter of 2016, there were stray reports of some of the biggest employers having made workforce cuts, and the impact has reverberated through the economy and on sentiments. A new update from Hays, the consultancy, suggests 37 per cent of employers in the Gulf reported reduced headcounts.

Other sources have also commented on a disconnect — the latest Emirates NBD PMI (purchasing managers index) tracker notes that business sentiments are on the mend but this is not reflected in their hiring numbers.

And then there is the oil price situation.

“Unfortunately, there is usually a two- to three-year lag between oil price fluctuations and an associated impact on Dubai residential property prices,” the Phidar report adds.

Dubai’s “economy may have decoupled from the oil sector, but it is still indirectly linked through the role of regional capital flows.

“Dubai’s real estate market is driven, or at least influenced, by multiple factors. Unpacking those factors can be confusing. Recently, there have been claims that a moderately higher average oil price and GDP will lead to a turnaround in the property markets this year. Unfortunately, it is just not that simple.

“The impact of moderate oil price gains on Dubai property price will likely come in mid-2018.”

Based on Phidar’s internal tracking of freehold areas, apartment values in Dubai declined 7.9 per cent all through last year compared with 2015, while rents were down 8.9 per cent. For villas, the price decline was 2.1 per cent and lease terms recorded a 11.6 per cent dip.

“Typically, volumes start to increase around a recovery, yet there is no indication of this,” Phidar reports. “The fourth quarter volumes are usually a bellwether for the next year, using volume data from completed communities tracked in Phidar’s HPI.

“In years when Q4 volumes fall below the average of the preceding three quarters, the following year experienced price decline. In Q4-16, volumes were below the 2016 average.”

Even then, developers have been trying out their chances since the start of the year — interestingly, the majority of these have been in the premium space, in the expectation that overseas investors should make a strong return to the market at some point.

But Phidar’s report suggests the need for a cautious outlook.

“The recent bump in property prices is likely due to the elusive and often irrational market psychology,” it adds. “There is a general expectation that real estate demand and prices will rise around the Expo 2020 event.

“Anecdotal evidence indicates private and institutional investors are banking on this strategy: buy/build in the five years before the event and sell around the next anticipated market peak in 2020-21.

“Unfortunately, if most stakeholders follow the same strategy without regard for fundamentals, then the risk of another bubble increases. It is still too early for a rational recovery in sentiment, but humans are often irrational.

“Collective sentiment can always push the market into tacit collusion, buoying prices on the widespread expectation of capital growth.”

 

Higher infrastructure spend will be a plus

 

Dubai’s push with increased infrastructure spend will have favourable consequences for the property market at some stage. In its latest budget exercise, spending on infrastructure will constitute 17 per cent, a 27 per cent increase on the 2016 plans. “Considering the nature of the infrastructure projects, the full output gain will take more than 12 months to realize” states the report.