Dubai: The removal of sanctions on Iran need not set off a wave of buying by Iranian investors in Dubai property, according to findings released by a consultancy.
The biggest hurdle is the fact that Dubai’s property values are currently 4.4 times more expensive for Iranian buyers than what they were in the fourth quarter of2010.
Since then, the dollar — and the pegged dirham by extension — have appreciated by around 195 per cent against the Iranian rial. (It must be kept in mind here that there is an officially sanctioned exchange rate in Iran as well as those in the more volatile “parallel” marketplace.)
“Analysis shows the notion of pent-up real estate investment demand [from Iranian buying] is likely a myth spawned by over-interpretation of a limited dataset,” said Jesse Downs, managing director of Phidar Advisory. “A deeper investigation of the data and context illustrates the low probability for significant short-term gains from this policy shift.”
Based on available transactional data for Dubai’s property market, there is nothing that will “allow differentiation of buyer nationality by Iranian expats and Iranian buyers living in Iran,” the report states. “Moreover, it is not possible to isolate real estate purchased with capital from Iran, compared to Iranian expatriates or nationals purchasing with funds held in other countries or recirculated in the UAE.”
Moreover, there is the all-too-important detail about how costly buying Dubai property can still be... especially for those investors where currency exchange rates are not in their favour.
Even with the sustained slide in Dubai’s property values since last year, they are still 49.7 per cent higher than their levels in late 2010, based on Phidar’s ‘Apartment Price Index’.
At such a differential, it would be a tall task for prospective Iranian buyers — more so if they are going to use funds sourced from within their country — to scale.
“In 2010, Iran was growing, while much of the world withered, so there was capital to deploy, but inflation and sanction concerns pushed the capital out of Iran and into low-inflation markets with opportunistic investment, like Dubai real estate,” the Phidar note states.
In the fourth quarter of 2009, apartment values in Dubai had “already dropped 44 per cent, which equates to 84 per cent of the total price decline actualised before the market troughed in 2011.”
It’s not the case now — Dubai realty went through a sharp upturn thereafter, which continued all the way up to early 2014. The weakness started to manifest itself from the second quarter of that year and continues to this day.
This will only douse the expectations of those developers in Dubai who were looking to clear inventory, and those of investors seeking an exit in a softening market.
“Dubai’s property markets will likely experience [a] price decline over the next two years,” said Downs. “However, based on current global and local dynamics prices are unlikely to fall to the trough levels of 2010-11.”
Factbox: Iranian banks weighed down by property assets
* According to Renaissance Capital, Iranian banks have accumulated sizeable non-core investments on their balance-sheets, mainly in the property market.
“Most of these assets have never been marked to market and we have heard a variety of opinions on their fair value. Real estate also makes up a large part of loan collateral, while the sector’s single largest credit exposure is to construction and housing [almost 30 per cent].”
