Dubai: The third quarter of the year could see a further softening of property values and rents in Dubai, as the market needs more time to adjust to global currency movements and oil price shifts, says a new report from Phidar Advisory.

The consultancy continues to maintain a cautionary forecast on Dubai realty prospects in the near term while others contend the downturn is over.

The majority view now believes that a turnaround could be there from 2017 onwards and that Brexit’s impact on deal flow in the local market will be limited to the short-term.

But in Phidar’s reckoning, the weakening pound that Brexit spawned could have a more telling impact on Dubai property transactions.

“Since mid-2014, currency fluctuations created an inflationary shock for foreign buyers of Dubai real estate,” it says. “In 2015, foreign nationals purchased over 80 per cent of real estate investment in Dubai.

“From that portion, 82 per cent was purchased from foreign nationals outside of the GCC, most of which are from countries with floating exchange rates.

“The United Kingdom’s referendum to leave the European Union caused the GBP to lose 11-12 per cent. Since Brexit occurred in the last 10 days of Q2, the impact will be most noticeable in Q3 results … assuming the GBP does not recover in the short term.

“The strong dollar and low oil price continue to hinder job growth and thereby residential occupier demand. Sectors linked to tourism and real estate constitute up to 60-70 per cent of Dubai’s GDP and these sectors face an immediate inflationary shock when the dollar appreciates against key currencies.”

In the first six months, foreign buyers (excluding GCC nationals) bought Dh28 billion worth of property in Dubai, based on figures released by Dubai Land Department early this week. British buyers represented the second largest base among them, accounting for Dh4 billion.

How much of an impact Brexit and the weak pound will have on British buyers will be keenly followed when the Q3-16 transaction numbers are collated. But there are some industry sources who suggest that the impact could be minimal as most of British-led buying activity is done by expats based here or in the Gulf and not resident in the UK.

“It means their investment decisions are linked to the dirham/dollar and not dependent on the pound’s status,” said a broker. “But Q3 and Q4 should provide enough indications of where these sentiments lay.”

The Phidar report also takes a contrarian view on the demand and supply situation. The conventional wisdom in industry circles is that Dubai’s developers have been controlling new launches and project deliveries to slow down price drops.

But Phidar’s view is that “The current decline is a demand story, not a supply story. The market has been in decline since mid-2014, yet supply expansion in 2014 and 2015 was the lowest in approximately a decade, both years coming in with less 20,000 new homes completed.

“In H1-16, new supply completed was only around 2,000 more units than in the same period the previous year. In an average year, 2,000 units would be absorbed in four weeks.

“So softening rents in the face of relatively stable supply expansion indicates demand is weakening.”