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Nicholas Maclean, CBRE’s Managing Director, Middle East, and Mat Green, Head of Research and Consultancy — UAE, cite major factors that will impact the market in 2016.
1) Oil prices: Oil prices have touched multiyear lows and ratings agency Moody’s has lowered its price assumption for Brent crude oil, the international benchmark, to $43 (Dh157.92) from $53 per barrel in 2016.
Maclean lists several reasons why continued low prices are in fact good for Dubai’s economy in general and for the property market in particular. “Dubai’s advantage will get stronger, not weaker as a result of low oil prices,” he says.
"Lower oil prices for competing cities will have a different impact. For cities that are under development and require their governments to kick-start or invest into the infrastructure, they are going to slow down their pace of development because the government won’t have the same level of funds. For Dubai, where the infrastructure is more developed than anywhere else within the region, it gives them an additional advantage,” Maclean says.
The second factor is the importance of the aviation sector to Dubai. “In theory operating the airlines here will be cheaper as well because of the fuel price will be cheaper,” he says.
Analysing data from the past year, Green says, “The prices may continue to go down but if you look at the performance of Dubai this year, certain components of real estate market have done fantastically well. If the office sector is doing well when oil prices are at $45, you have to be relatively confident that we can sustain potentially lower [prices] because Dubai is not an oil economy.”
2) Corporate demand: Corporate demand has held up office sector in 2015. Maclean says that the level of demand is sustainable. “The level of demand from international corporates from Europe and the US in particular is as strong as we have ever seen it. People who want to come into this market or expand their operations are stronger than 2006-07. So the market makers here at the moment are those foreign corporates who look at the region and say that they need a presence there. Increasingly, they’re saying Dubai is where I need to be.”
Relatively lower economic growth in mature economies might have something to do with this. Maclean says, “Some of the more mature economies are growing at 0-2 per cent. If they need opportunities for more growth they are going to take a higher relative risk and, therefore, coming to newer markets or those that they are not familiar with, which will include Dubai.”
Green says that the office market has surpassed expectations. “We are seeing pretty good conditions certainly for the commercial office market, better than we’ve seen for years. In terms of pre-leasing that we’ve seen this year, we’d say that this is one of the strongest Dubai markets we have seen for commercial real estate in quite some time.”
3) Boost end-user demand: Several professionals have urged the UAE Central Bank to increase the loan-to-value (LTV) ratio for first-time buyers. Green says, “The government and the Central Bank have a mechanism now whereby they can control the market a little bit better by changing the LTV ratio, encouraging more end-users, or discouraging speculators, depending on the cycle in the market.
“Anything the government can do in the long term to really improve the market, make it more mature, encourage long-term investment and more end users is a positive thing. It helps avoid the volatility driven by speculative investment and cash investors of off-plan.
Source: Shalini Seth, Special to Property Weekly