The UAE Housing Market Analysis - Case Study Example

UAE Housing Market Analysis Name: Institution: UAE Housing Market Analysis Introduction The UAE is among the fast developing nations in the world. This growth owes to the ability of most sectors of the economy to match up to the requirements that come with being a developed nation. It is a federation of seven kingdoms that include Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al-Khaimah, Sharjah, and Umm al-Qaiwain. Although most people may associate the country with elevated levels of insecurity and instability, the monarchies have invested heavily in different sectors of the economy. It has a population of about 9.3 million and is ranked 25th in the economic sector. To improve its international accreditation, the country has ensured it maintains notable success in the open markets and regulatory efficiency sectors. One of the most successful sectors of the UAE economy is the rate of growth that the country experiences in the housing sector. To ascertain the development of the housing sector, various factors need to be evaluated. The geographical location, demographics and the economic factors play an important part in shaping the UAE supply of housing. The UAE population is largely composed of expatriates therefore raising the stakes in the accommodation of luxurious and lavish housing units (Ponzini, 2011). Moreover, considering the UAE can accommodate residents and natives in search of business and pleasure, the housing sector has experienced increased competition. With stunning beaches, top class bistros, striking vessels and landmarks like the Burj Khalifa all a part of everyday life, are some of the reasons people are relocating and purchasing houses in the UAE (Zembowicz, 2009). The housing economy in the UAE contributes extensively to the gross domestic product as well as propels economic development in the country. It plays an important part in concentrating investors from across the globe that consider the future positive value of the sector and the returns that are imminent. Similarly, the country has often reviewed its policies on the ownership and appropriation of housing units as well as the mortgage payments that are required in the country. This has led to the stratification into high-rise developments and large villa estates to the increasingly popular expatriate complexes. It has created employment for the people in the country through expanding the expertise and experience of the manufacturers and architects in the country expanding the GDP. Results Before the onset of the international global crisis of 2008, UAE was experiencing unprecedented growth in the housing sector owing to the number of people relocating and touring the country for business and pleasure (Acuto, 2010). The GDP of the country was considered to be abutting 599.8 billion dollars with a growth rate of 3.6%. The annual growth rate was recorded as 4 percent with 64,479 dollars per capita income. After the crisis, the housing economy experienced immense increase in the price of residential and apartment sales (Al-Malkawi & Pillai, 2013). However, in the recent UAE, housing prices are gradually declining subsequent to the unsustainable surge in the recent years. Inflation of housing in the UAE dropped by 6.86% recording a property price index of about 5.35%. In 2016, the prices of apartments dropped by approximately 5.15% while the villa prices reduced by 6.05%. To understand the economic scope of housing in the UAE, economists evaluate the residential property price index on a monthly basis covering seven cities and eight districts (Mansoor & Bhatti, 2008). Dubai being among the major kingdom offers apartments for sale between the prices of 4,400 dollars and 6,000 dollars per square kilometer. It offers medium size apartments, small apartments and significantly smaller apartments (Acuto, 2010). An evaluation of the yields that investors previously accrued in terms of gross rent once houses are fully rented out ranges from about 5.2% to about 5.9% in medium sized and small sized apartments. The reduced cost of smaller houses in terms of square meters raises the significant difference in the gross rental yields (Mansoor & Bhatti, 2008). In other developed and developing countries, the cost of appropriating smaller houses is higher than larger houses. Such conditions have been steered by a number of factors that affect the operation and growth of the housing market relating to the government and the natives. Discussion Excessive Speculation by Foreign Buyers The housing economy of UAE is spearheaded by the presence of foreign buyers in the country for business or pleasure. A major contributor to the continuation of the sector is the country’s role in revising the foreign property ownership policies that were initially considered a hindrance to economic growth. The law that was passed in 2006 created an avenue for people to accrue more resources and opened up the UAE market for foreign investment. However, land has appreciated heavily that has caused slow growth in the construction and appropriation of property and houses. The Russians and Europeans constitute about 20% of the foreign investor population in the UAE while the native population constitutes about 28% of the investors. This rate of investment is considered as a positive move towards improving the housing sector with people from foreign countries desiring to extend the market (Zembowicz, 2009). Although this is the case, UAE has abolished a number of foreign monetary policies that has led to the increased liquidity in the economy. Off plan housing in the UAE has therefore become a challenge to the foreign investors who consider leveraging from the ventures. Construction Projects The construction industry in UAE has experienced tremendous growth after the 2008 crisis owing to the developments in technology and modernization. The revision of the foreign investment policies has had significant effect on the construction of houses and property as well as appropriation of resources (Ponzini, 2011). Although the sector is often affected by various factors such as the falling demand and deteriorating market conditions because of the rising dollar, the UAE has maintained a number of projects that seem to ascertain positive return. Economists link the UAE construction industry with the domestic economy that is considered one of the most rewarding sectors. Similarly, the UAE federal government extended visas of real estate investors from six months to three years offering a significant boost for new investments into UAE construction industry expanding the supply of houses across the country. It was propelled by the perception that UAE is a safe haven for residents and foreigners. Benchmark Rates Payment rates for houses in the UAE are made though mortgage based on the United States dollar. In this case, residents are subjected to different rates considering the shifting patterns of the dollar to offset any economical imbalance. This forms a large part of the difference in housing in other countries. However, since the crisis of 2008, the rates have maintained a lower value from the projected 7 percent value as projected. Although financing for housing has maintained a steady value that has seen different deals on the lock-in periods for mortgage payments. The premium payment values for property have changed significantly with values receding to favorable mortgage rates. Price volatility for payments has often resulted to instances of inflation causing banks to track the US monetary systems and policies. Mortgage Lending In the recent years, the UAE mortgage market has expanded from about 4.1 percent to 15.2 percent. The mortgage loans have also risen significantly displaying the demand for housing units and appropriation. Banks have engaged in lending for the housing sector as more people undertake transactions and acquire more property. Such changes are evident with more people seeking out rural areas of the UAE kingdoms to evade the overpopulated urban centers. Moreover, the development of various areas of the economy such as business has warranted distribution of people across different regions causing the need for residential and commercial housing to rise. Therefore, banks with the positive presumption of the future returns that the housing sector holds are more willing to lend to potential investors and nationals. As ownership increases, the need to appropriate more land rises therefore elevating the cost of housing translating to the lending and interest rates. Rents and Taxes With the continued fluctuations in the prices of housing and mortgage, the government of UAE introduced new rates that will ensure the citizens are not affected. A rent cap of about 15 percent was allowed in the country as it reduced during the year. The various real estate regulating agencies were involved in revising the past, present and prospective rent index rates to reinstate the rent caps. To signify this as a countrywide concern, the regulatory committee created the rental law to establish the rental index as a benchmark for rent increases. This regulation ensured that investors and property owners as well as banks were aware of the changes and jurisdiction allowed. It ensured that clients were not exploited regardless of the financial and economic conditions in UAE. Role of the Government The UAE government has been proactive in allowing the country and investors to reap more from the housing sector. It plays a major role in offering proposals that will ensure the country remains at the forefront of every development. Among the major contributions is the allowance offered to women in the states to own and appropriate property particularly houses. Women activists and scholars have argued against the inequality that surrounds many sectors of the economy restricting women to be part of the developments. Moreover, the government has allowed banks and foreign investors to seek financial aid from developed countries and elevate the housing market economy (Ponzini, 2011). This has been achieved through reevaluating the liquidity ratios to allow local and domestic banks credibility for lending. Architects have also been encouraged in schools and inst institutions to offer their expertise regarding the housing sector and ways it can be improved. Such methods prove effective while aiming at stimulating the real estate and housing sector as well as the construction economy. Conclusion The UAE housing market economy has proved to be a significant aspect of consideration owing to the ever-increasing population in the country. Expatriates form most of the population that occupies a vast capacity in terms of housing. After evaluating the housing market in UAE before the economic crisis of 2008, it is possible that the country has experienced frequent changes in the sector particularly because of the changing contemporary perspective. The housing market holds a positive future prospect of success and development with the increased number of investments that have been made locally and by foreigners. References Acuto, M. (2010). High-rise Dubai urban entrepreneurialism and the technology of symbolic power. Cities, 27(4), 272-284. Al-Malkawi, H. A. N., & Pillai, R. (2013). The impact of financial crisis on UAE real estate and construction sector: analysis and implications. Humanomics, 29(2), 115-135. Mansoor Khan, M., & Ishaq Bhatti, M. (2008). Islamic banking and finance: on its way to globalization. Managerial Finance, 34(10), 708-725. Ponzini, D. (2011). Large scale development projects and star architecture in the absence of democratic politics: The case of Abu Dhabi, UAE. Cities, 28(3), 251-259. Zembowicz, F. (2009). Remodeling Dubai: The Emirate's Housing Market. Harvard International Review, 30(4), 12. Read More