The UAE Housing Market Analysis - Case Study Example

UAE Housing Market Analysis Student’s Name Institutional Affiliation Introduction UAE is one of the most developed economic amongst the entire GCC nations. The group of Emirates forming this nation has continued to experience intensive development in regards to different sectors of the economy (Deutsche Bank, 2013). It is important to note that the nation’s main source of revenues arises out of exports relating petroleum and natural gases. The current economic growth experience is attributed to intensive high levels of government interventions in matters related to creation of free economic zones; significant levels of engagement into new projects as well as the existing stronger market for oil and related products across the numerous global markets (Deutsche Bank, 2013). In essence, due to this notable and most viable country direction; the entire economy has improved especially in such important sectors as the real estate and infrastructure with improvements reaching an all time high of between 7% and 9% in gross domestic product (Deutsche Bank, 2013). Presently, the UAE government is much focused on adopting diversification strategies in order to accomplish the much needed sustainable growth and development with efforts being directed towards the non-oil sector for the purpose of stabilizing the country ‘s overall economy. In fact, the existence of enormous levels of cranes in both Abu Dhabi and Dubai is a proof of significant improvements in the country’s economy as a whole. By the start of 2007, the housing sector has already posted 25.6% in comparison to other previous operational periods (Deutsche Bank, 2013). The focus of this assignment is to provide a housing market analysis in relation to UAE’s overall economic growth and Expo 2020. The chart below fairly compares the growths of both Singapore and UAE GDPs in the period between 1973 and 2010 (Deutsche Bank, 2013). Figure 1 The growth ascertains that the economy has indeed grown intensively in relation to other major world’s economies. The real sector in the country is deemed to be the main contributing factor of the growth of the overall construction sector. In consequence, with the wake of the global financial crisis as well as UAE’s real estate market crash, the construction is yet again coming up slowly (Samba Financial Group, 2014). The improvements can be seen with the recovery in housing prices as shown in the Figure 2 below; a complete rebound in the financial institution sector for construction purposes; the reintroduction of off-plan sales that has ensured to facilitate developers in order to forge forward with any existing stalled project and new projects in Dubai and Abu Dhabi Emirates. Figure 2 In effect, the level of capital spending in the recent years by the Emirati governments and especially Abu Dhabi has been resumed after a significant slowdown over the years while Dubai is set to increase its spending prowess in regards to policies set out within the 2020 Expo (Samba Financial Group, 2014). Data collected in MEED indicates that the overall value of projects that is planned throughout the whole of UAE has improved by 10% over the last year or so to more than $730B. Of particular interest to note, the residential property prices have continued to rise in a rather sharp manner especially in both Dubai and Abu Dhabi. Notably, the rates of growth and development have specifically been tremendous in Dubai (Samba Financial Group, 2014). Despite this, residential housing sector prices in Dubai have started to be moderated with a year –on-year increase thereby easing to at least 23-33% in April 2014 for both mid range villas and apartments as seen in Figure 3 below; Figure-3 On the contrast, the prices for apartments in Abu Dhabi has accelerated by more than 30% on year-to-year, which is highly attributed to government intervention that required all public sector workers to live within the Emirate while the newly introduced looser foreign ownership regulations (Samba Financial Group, 2014). This can be perceived as being aggressive changes in the level of prices, even though the available amount of data indicate that the average price per each square foot are still somehow set below the overall peaks attained in 2008(Deutsche Bank, 2013). Research indicates that the housing sector fundamentals have been seen to offer intensive support (Samba Financial Group, 2014). In essence, the increased level of average prices is being driven by demand and supply aspects; being overly influenced by the return of speculative investors. In the contrary, significant analysis from Colliers indicates that residential supply in presently lagging demand in Abu Dhabi especially for affordable housing and is set to continue with that trend through 2018 given that the level of population is set to increase tremendously (Samba Financial Group, 2014). In Dubai, there is an experienced surge in the government intervention through the set of “safe heavens” for foreign investors that mostly pay in cash together with the intensive demand from an increasing resident expatriate population is seen to have resulted to slight shortage of supply in zones where most of the foreigners can go ahead to purchase housing units (Deutsche Bank, 2013). In a wider perspective, the underlying number of households in Dubai has continued to increase significantly by more than 7.6% in 2013, which represents more than 25,258 new housing units in a time when less than 10,000 new residential housing units were generated into the market according to Jones Lang LaSalle analysis (Watts, 2012). For such development levels, it is suggested that the recently placed firms continue to facilitate immense level of support for this accomplishment of this need. Still, researches conducted to establish the future outlook of the housing sector in the UAE indicates that both of them are exposed to certain levels of risk related to the overheating that is driven by speculative investments however; the underlying fundamentals in Abu Dhabi remain to be much stronger (Watts, 2012). Taking into consideration the Collier’s supply and demand analysis then it means that possible moderate price gains will be sustainable in the near future. For instance, Abu Dhabi’s population level has grown by at least 8% in the period commencing 2005 attaining a 2.33M mark as at mid of 2012 (Watts, 2012). A further growth is expected within this Emirate given that the level of economy has continued to expand exponentially. However, in Dubai, there remains to be relative concerns that indicate possible speculative investments in the future that would integrate off-plan sales; which have the effect of increasing the level of prices while at the same time trigger over development issues (Watts, 2012). Even though the current amount of data does not provide reliable analysis in regards to prediction of future housing developments, JLLS still indicates that more than 40,000 new residential housing units will be made available in Dubai by the end of 2016 (Watts, 2012). In the event that this number of new housing units continue to improve around the underlying rates; this would indicate that both the level of supply and demand could be more or less in sufficient balance by the end at the mid of 2016. This expectation will put up a threshold to the current price gains while suggesting more moderate increases as well. The figure 4 below shows the level of population increase in Dubai as it relates to the increase in both demand and supply fundamentals; The future of housing units in Dubai will however depend greatly on demand from foreign buyers. Although it will be a challenge to predict this, it is important to note that past research indicates that these buyers accounted for more than a half of real estate transactions in 2014 with investments of more than $31B as was put forward by Dubai Land Department(DLD) (Boleat, 2005). Statistically, the three top foreign investors by their nationality include; India- $4.9B; UK-$2.8B and Pakistan- $2.3B while the other GCC member countries contributed more than $9B (Boleat, 2005). The underlying macroeconomic reasons that has driven intensive growth and development of housing units in UAE is associated with; first, a relatively stronger population growth especially with Dubai expected to attain a 7% p.a in the period starting 2008 to 2016 is a fundamental reason for justifying possible future demand (Boleat, 2005). Secondly, it is expected that there would be a high number of people per each dwelling versus that of other most developed countries. In Dubai this ratio stands at 5.5, which is highly attributed to the demographic mix of the city’s overall population as well as intensive levels of disparity in living standards. Third, the underlying low mortgage to GDP ratio is a factor that will prompt further demand in housing units. Notwithstanding, with the Expo 2020 set to be carried out in Dubai; there will be even more demand for housing to especially rooms and hotel apartments to cater for the expected 25M tourist visitors. The private property has made efforts to increase the level of housing units to more than 100,000 that should be entering the market annually. To sum, the discussion above has been able to distinctively indicate that UAE has seen tremendous growth in its overall GDP in comparison to the other GCC country members. Specifically, Dubai and Abu Dhabi remain to be the most viable destinations for property markets due to their ever-increasing population growth; increased infrastructural developments as well as the aspect of foreign buyers buying into its housing sector. It has also been established that with the Expo 2020 set to take place; there would increased need for more housing and especially rooms and hotel apartments in order to cater for the expected 25M visitors. References Boleat, M. (2005). "Housing Finance in the United Arab Emirates." Housing Finance International 19(3), 3-6 Deutsche Bank (2013). Industry Analysis: UAE Real Estate. Market Research Forecast Change, 1-65. Retrieved on May 9, 2016 from https://www.db.com/mea/en/media/GDPBD00000257789.pdf Samba Financial Group. (2014). United Arab Emirates Outlook 2014-15. Report Series. Retrived on May 9, 2016 from https://www.samba.com/en/pdf/economy-watch/UAE_Outlook_Report_2014_15.pdf Watts, M. (2012), "Growth Moderates in UAE." MEED: Middle East Economic Digest, 24-25 Read More