Currency conundrum

As the US dollar gets stronger, it could be a great opportunity to make money on an investment in Dubai. But who will buy?EdwardMainwaring-Burton

We live in a region, built, centred and dependent on international business and the professionals and consumers it brings. Recent developments in the global economy have sent shock waves through the oil and currency markets. How will this affect the real estate sector in Dubai and what can we expect to see in the coming months and years? Will the international lifeblood of UAE property investment start to clot and dry up or will it simply pump in a different direction?

To understand the potential outcomes, we must accept that there are clear and immediate threats.

Dubai, though less dependent on oil than other emirates of the UAE, is nevertheless suffering from the reduction in income from the recent tumble in black gold prices. These historically low prices are unlikely to be permanent, but even if commodity values recover, it doesn’t eliminate the bigger, scarier elephant that refuses to leave the room: the US dollar. The dirham is pegged to the dollar. To all intents and purposes, they behave as one currency.

The Russian rouble has been devastated by Western sanctions and the ongoing crisis in Ukraine. As the US Federal Reserve brings quantitative easing to an end, the European Central Bank is embarking on its own massive mission of cash supply to the market to prevent deflation and help boost exports and domestic business in the European Union. Simultaneously, the Swiss National Bank made the sudden move of releasing the peg of the Swiss franc to the euro, prompting instant flows out of the 17-nation common  currency. And the dollar is getting stronger.

Good news, bad news

So far this probably all sounds a bit alien and unrelated to property in this country, but examine the situation from another angle and the dominoes start to wobble precariously. At first glance, a strong dollar (therefore, strong dirham) sounds great for investors here. After all, isn’t your property now worth more in relative terms? Well, yes and no. If you want to sell your villa on The Palm and fly off to live in a chateau in the Dordogne, you can afford about 15 per cent more chateau than you could this time last year. The problem is that the people moving here from Europe can afford 15 per cent less villa. Russian consumers, long an important source of demand for luxury real estate, could find that they can only buy about half as much villa as they might have expected a year ago.

So, there we have it. The strong currency will encourage sales and discourage purchases. This could lead to a reduction in prices. Should we panic? Should we all fill our bags with Benjamin Franklins and dash to Terminal 1? No. Pause. Breathe.

The canny investor can really benefit from the currency situation.

If you are already living here and prices are more attainable, brilliant. If you own property, consider how it can help you generate further income. If you have lots of equity in your property, then your mortgage advisor might be able to help you release some of it in order to invest in a safe and secure way of generating more money.

If more people are selling and fewer are buying, then there’s good news for the rental market. Apartments will be quickly filled and, with them, so will a good landlord’s pockets.

If you’re thinking of selling your chateau in the Dordogne in the next couple of years, then consider your other options carefully. Rent it out and keep the proceeds Use your supercharged dirhams and dollars to turn it into a hotel or theme park.

It’s the cycle

While we might see a slight decrease in the flow of foreign currencies, shoppers and investors in the near future, it is all a natural part of the cycle of any market.

Nobody has a crystal ball to predict how politics, economics and global events will change in the future. One thing, though, will always be true. The smart people will find the hidden opportunities. There is a good chance that the US dollar will continue to climb in the near future. This could be a great opportunity to make money on an investment without its price in dirhams ever even changing. Better still, just think how much more you will now be able to afford if you take a holiday in Rome or Moscow!

Source: EdwardMainwaring-Burton, Special to Property Weekly


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