Dubai residential property market shrugs off inflation threat as apartment & villa transactions hit AED 61.9bln

Originally published on Jun 09, 2022 | Zawya

As global economies wrestle with the fallout of record spikes in inflation, global property consultant, Knight Frank believes the impact on the UAE economy and Dubai’s residential market is likely to be limited for now. Knight Frank estimates there have been AED 61.9bn worth of villa and apartment transactions between January and May 2022. 

Faisal Durrani, Partner – Head of Middle East Research, explained: “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”.  

By far the most effective measure is the government’s pre-emptive stealth 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.” 

Citing data from Oxford Economics, Knight Frank points to the expected rebound in Abu Dhabi’s GDP growth from about 0.5% to just over 6% 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.  

Business confidence 

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, however the pace of recruitment appear to have slowed slightly. 

“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 

Elsewhere, the rising inflation poses a limited threat to Dubai’s residential property market, according to Knight Frank’s analysis.  

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% 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% of Dubai’s residential market, by value, at present. Last year the figure was nearer 40% and in 2007 just over 50% 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 AED 38 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. 

“For the residential market however, the bulk of deals at the top end of the price spectrum are cash purchases, in large part due to the unrelenting influx of ultra-high net worth capital targeting Dubai’s most expensive homes. So, with cash remaining king, the risk to the housing market is low for now.” 

Furthermore, with house price growth in Dubai this year expected to hover at around 5-7% for the mainstream market and 12-15% for the prime markets, residential property in the emirate is still an excellent inflation hedge”, Durrani concluded.