Samir Salya on Key Influences for Dubai Property in 2018

Dubai’s property market has seen a turbulent time in recent months, due to the fall in prices and slump in sales. Although the region remains an attractive city to investors, there are several factors that can influence the success of the market moving forward.

Corporate consolidation

Mergers of big businesses are still impacting the economy in Dubai. The consolidation of the Nation Bank of Abu Dhabi (NBAD) and the First Gulf Bank (FGB), two key banks in the UAE, is affecting the economy of the region on a macro level. As the merger has led to tens of thousands of executive job losses, Dubai property is becoming more unaffordable as its wealthy market begins to dwindle. Combined with the sharp downturn in global aviation, the oil and gas capital expenditure slump and the plunge in retail sales due, the area is pricing itself out of buyers.

With the rising demand for affordable housing in the area, the Dubai property market could move towards lower cost and smaller developments in 2018. This could see a further decline for luxury property but would address financial issues. 2018 could be the year of affordable housing in Dubai.

The introduction of Value Added Tax (VAT)

Moving into 2018, the UAE is adopting a 5% increase in VAT. As this is already a time of flat consumer and business spending, the new chargers are unlikely to encourage more spending. This is likely to affect the demand for new homes and office spaces in 2018. As any commercial property in Dubai and lease incentives, such as free office fit-outs, will now be subject to VAT, this added expense could deter big investments.

End of the Federal Reserve era

The end of 2017 also brought with it the end of the era of Federal Reserve’s easy money lending. According to a report by the Federal Reserve in September 2017, the American central bank is reducing its balance sheet by $270 billion. This was followed by a decision to raise interest rates to 1.5% in December 2017. This will impact the global economy as banks become tighter and harsher with loans. The home mortgage market in the UAE entirely dependent on floating rate bank debt, meaning it relies on a variable rate based on the federal fund’s rate. The benchmark for consumer loans and home mortgages in the UAE is set to rise, pricing some consumers out of home ownership.

More monitoring needed

Dubai’s market will become increasingly monitored over 2018. Through monitoring the rental trends, interest rates and banking loan growth in real time, Dubai can adapt to changes in its market easier. More control over the market is being shown through the fall in rental prices. A report by Bayut.com, a real estate portal, is showing values down by up to 16% in areas such as Dubai International City in the final quarter of 2017. With this, Dubai is moving towards affordability.

About Samir Salya

Samir Salya is the Chairman of Reign Holdings and is involved in UK and UAE real estate and construction. Samir holds over 20 years’ experience in executive management, business expansion, performance improvement, sales and marketing.