Dubai: The dollar’s relative value — or more pertinently how much it could gain against a basket of emerging market currencies — should influence the medium-term investor appetite for Dubai realty. As things stand now, “the propensity for investing in Dubai real estate is at a five-year low point”, based on projections put out by Phidar Advisory, a property consultancy.

This, according to Phidar, derives “from quantitative easing policies that erode foreign currencies to tax code amendments that stem capital outflows … events in foreign markets can amplify real estate demand and price volatility in Dubai, which, in turn, increases Dubai’s market risk”. To place matters in perspective, transaction volumes during January were up by only 1.7 per cent compared with a year ago. The well-documented volatility of the rouble in recent times is only part of the story. China’s ongoing crackdown on corruption has tamped down on conspicuous consumption by Chinese citizens and, to a point, their overseas investments. In its latest budget, the Indian government has given clear indicators that it could finally have a plan of action to tackle black money and its deployment through various channels into assets outside of India.

“Generally, the strong dollar tempers capital flows into Dubai … (while) weaker currencies create relative value in foreign markets and encourage capital outflows from Dubai,” according to Phidar. “The net result: a smaller investor base with yield sensitive capital in Dubai”.

“The impact of lower oil prices and a stronger dollar will undoubtedly dampen demand from overseas investors,” said Sameer Lakhani, Managing Director of Global Capital Partners. “The entire advent of the freehold phenomena [during the early part of the last decade] and the subsequent boom-bust cycle came against the backdrop of a declining dollar, and rising oil prices, and only in the last year did these two relationships changed.”

While the market frets over what the overseas investor could do next, Dubai’s tenant base could be in for a bit of a boost. That would come about from the 25,000 new homes that look likely to be delivered this year, as opposed to the more optimistic 28,000-32,000 unit deliveries projected by some analysts. Actual deliveries last year weighed in at less than 15,000 units.

If the projected deliveries do add up this year, “rentals [could] decline and trigger a drop in sales values in Dubai and at a greater pace,” said Jesse Downs, Managing Director of Phidar Advisory.

“Rent softening could also happen due to affordability constraints and the possibility of slower job growth for sectors affected by the strong dollar … for example, the real estate industry and sectors linked to tourism, like retail and hospitality.

“Primarily due to a strong dollar and dirham, Phidar expects the current slump to continue through 2015. Thereafter, the market will probably experience a period of volatility until stabiliz¬ing in 2018,” he added.