Focus on growth management in Dubai

Focus on growth management in DubaiImage Credit: Supplied

Real estate experts believe the global economic slowdown and political tension in some countries in the Middle East will not have significant impact on Dubai.

A more palpable consequence, though, is the slower growth of the property sector this year.

The International Monetary Fund's (IMF) World Economic Outlook is projecting slower global growth this year, but Craig Plumb, Head of Research — Middle East and North Africa (Mena) at JLL, points out that it is still better than last year.

Plumb does warn that further deterioration of the global economy will have a negative impact on Dubai's real estate sector.

''The evidence from the global financial crunch in 2008-09 is that the Dubai economy is particularly exposed to global capital flows and would, therefore, suffer from a more pronounced economic slowdown,'' Plumb tells Property Weekly.

Carla Slim, Associate Economist at Standard Chartered Bank, says because the UAE is an open economy, slower global growth would impact the trade, tourism and transport sectors, which are key drivers of the Dubai economy. She points out, though, that global growth rates will improve next year.

In its October 2014 World Economic Outlook, the IMF projects global growth to be 3.8 per cent next year, slightly higher than this year's 3.3 per cent. The new forecast is 0.4 percentage point lower than in the April 2014 survey.

Because of weak economic performance in the Eurozone and geopolitical tensions in some Middle East countries, the IMF says the projected pickup in growth ''may again fail to materialize or fall short of expectations''.

Simon Gray, Managing Director of Chestertons Mena, says the revised IMF outlook, based on lower performance in Eurozone countries, is not expected to affect the UAE.

''Economic growth prospects for the UAE have been revised upwards,'' says Plumb.

The 2015 Global Investor Sentiment survey of property advisor Colliers International reveals that 78 per cent of investors in Europe, the Middle East and Africa (EMEA) plan to grow their real estate investment in the region next year.

Colliers International, in a press statement, says investor confidence in the real estate sector is strengthened by low interest rates.

''European institutions, in particular, have now started to show signs that they are back and very competitive in core markets where Asian and North American capital has dominated over the past few years, expanding in both their home countries and across borders next year,'' says John Davis, CEO of Colliers International Mena.

The Colliers International survey indicates that two thirds of EMEA investors plan to take more risks in the future to achieve bigger returns. Those in the Mena lead the risk-takers.

GCC economy

The IMF notes, though, that economic activity in the GCC has accelerated since the second half of last year, driven by higher oil production and government spending. It says the macroeconomic effects of geopolitical tensions in the Middle East are mostly confined to countries in turmoil, but there are ''tangible risks'' of more widespread disruption.

Gray says while international investors are concerned about political tensions in the region, they see the UAE as a neutral country.

Plumb agrees, saying the UAE is seen as a ''safe haven in a volatile region'' and is benefiting from increased global interest.

''Provided that the current geopolitical issues do not escalate further and have a more direct impact on the UAE, this situation is likely to continue,'' he adds.

But Slim says changes in global liquidity would certainly affect the property sector in Dubai.

''In a paradigm of monetary policy easing, where global liquidity is ample and needs to be parked in different asset markets around the world, it is cautious to keep an eye on the policy of central banks,'' she says.

Indeed, the IMF points out that raising actual and potential growth would require continued support from monetary policy, noting declining long-term interest rates in advanced economies.

On the other hand, the recent fall in oil prices would not hurt the UAE economy and could actually be more beneficial, as it will spur economic growth in manufacturing countries such as Germany, the US and Japan. Consequently, this will have positive effects on the UAE in terms of investment.

''The UAE economy is more diversified, so it is not as exposed to a prolonged period of low oil prices as other GCC countries,'' says Plumb. ''The non-oil sector continues to grow more quickly at 5.9 per cent this year.''

The IMF forecasts a growth of 4.3 per cent this year and 4.5 per cent next year for the UAE. The figures are lower than the actual growth of 5.2 per cent, but are higher than the average growth of oil-exporting economies in the region.

Slim warns Dubai's economy could begin to overheat with growth rates above 5 per cent, as Standard Chartered expects next year's growth rates to be above 4 per cent, but lower than 5 per cent.

''The challenge the country is facing now is not a challenge of generating growth, but of managing growth in a manner that is sustainable and lasting,'' says Slim. ''We would prefer to see the economy growing sustainably every year rather than to overachieve this massively for a short period of time.''

She adds: ''We think the key drivers of growth in Dubai are tourism, trade and transport. Dubai is benefiting from its geographic positioning and from the spending spree in infrastructure across the GCC to capture strong regional trade flows.''


The IMF's World Economic Outlook points out the need for fiscal consolidation over the medium term in oil exporting GCC countries ''to build buffers against future shocks and ensure that future generations can also benefit from their oil wealth''.

The report also recommends structural reforms to help economies in the region diversify away from oil. The IMF says economic activity in the Middle East, North Africa, Afghanistan and Pakistan (Menap) will pick up in 2014-15, but ''recovery will remain fragile'' due to political transitions and security problems in some countries.

The IMF sees an uptick next year with the assumption, among others, that geopolitical tensions and domestic strife will ease gradually in the next two years.

It says Iraq, Libya and Yemen, in particular, face risks caused by disruptions in oil production due to geopolitical tensions. These disruptions could lead to higher oil prices and lower global growth, but could also mean higher oil revenues for other Menap oil exporters.

''There are also risks that oil prices could turn out to be lower than expected because of increased oil supply or lower demand,'' according to the IMF.

The IMF forecasts the average growth rate of GCC oil exporters to reach 2.5 per cent this year — 0.3 percentage point higher than last year — and 3.9 per cent next year. The IMF expects slower growth for oil GDP compared to non-oil GDP in the region because of modest increases in global oil demand and rising supply in North America.

Furthermore, last year's growth rate is hard to match.

Gray explains that last year was a recovery period for the UAE, particularly for the property sector, resulting in overall positive growth.

''We expect growth levels to get closer to long-term averages,'' says Plumb. ''We do expect the property sector to grow at a slightly slower rate than the previous year.''

Read about Dubai Property Market which builds to cater to demand where it actually exists

Source: Liberty Pinili, Special to Property Weekly


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