Dubai: Apartment and villa transactions worth Dh61.9 billion have taken place in Dubai between January and May 2022, a report said on Monday, highlighting how the real estate market has continued to perform well even as global economies struggle to fight inflation amid tightening markets.
With the house price growth expected to hover near 5-7 per cent in the mainstream markets and 12-15 per cent in the prime markets, residential property in the emirate is likely to remain an excellent hedge against this inflation, said a senior official at Knight Frank.
“There are many reasons for cautious optimism when it comes to containing inflation in the UAE. The government’s extremely diversified imports strategy, steps to boost food security in recent years and the strength of the US dollar, which is curtailing imported inflation, are all huge positives,” said Faisal Durrani, Partner – Head of Middle East Research.
By far the most effective measure is the government’s pre-emptive move to freeze the price for 11,000 basic goods, including milk, bread, meat and poultry. The policy has been bolstered by the surge in crude oil prices, which is going to underpin a sharp turnaround in economic growth, he added.
Citing data from Oxford Economics, Knight Frank points to the expected rebound in Abu Dhabi’s GDP growth from about 0.5 per cent to just over 6 per cent this year. Dubai’s GDP is also expected to expand by a similar figure, mirroring last year’s growth, boosted by a widespread resumption in global travel and the emirate’s attractiveness as a global holiday hotspot.
The relative positivity in the economy is percolating through to business activity levels, with the latest PMI reading for the UAE’s all-important non-oil sector holding steady at a 12-month high in April as orders continued to rise.
“The April PMI readings indicate that businesses are clearly nervous about rising cost pressures. Two immediate pressure release valves are a reduction in the pace of new hires and passing on costs to consumers. The latter is often seen as a last resort and we’re not seeing that yet,” Durrani said.
Residential market remains relatively insulated
Ashley Bayliss, Partner - Head of Mortgage and Debt Advisory, Knight Frank, said: “The UAE’s fiscal policy correlates with the US, and the recent 50 basis point hike in interest rates to 2.25 per cent does mean higher outgoings for mortgaged households going forward. However, it remains comparable with other international prime markets.”
According to Knight Frank, mortgaged buyers for villas and apartments account for just 18 per cent of Dubai’s residential market, by value, at present. Last year the figure was near 40 per cent and in 2007 just over 50 per cent of transactions were financed.
“While this appears to be a decrease in residential mortgage lending, as at the end of May there has been almost Dh38 billion of financing extended across all real estate asset classes. Extrapolating the number of transactions, we have seen so far this year, 2022 could be on course to see the second highest level of mortgaged deals in the last five years for the whole real estate market. The main challenge is for banks to keep pace with the current growth of the market,” explained Bayliss.