As the UAE real estate market is expected to remain soft until late 2017, wealth managers will find plenty of opportunities to make potentially profitable investments for their HNW clients.
The current property market in Dubai is going through a turbulent period. According to Cluttons, average apartment prices are likely to end 2016 down 5% on last year, while the value of villas, especially in high-end locations, is expected to be 7% down on last year, with the possibility of these figures falling down to 10% before the year is out.
Several factors have weighed on the performance of the UAE property market, causing its consistent downturn throughout 2016:
- Low oil prices in Gulf Co-operation Council states have affected the purchasing power of neighboring countries, such as Saudi Arabia.
- The strong US dollar, which the Emirati dirham is pegged to, has made investments in the UAE a lot more expensive for international buyers.
- The record low pound value following Brexit has put a brake on investments from British nationals, who constitute the second most active international buyers in the UAE property market.
Falling property prices will surely affect Dubai HNW portfolios. As per our Global Wealth Managers Survey, property constitutes 26.8% of UAE millionaires’ investments, of which 75% are allocated in REITs. These figures are much higher than the global average, as property investments are more likely to be Sharia-compliant, and Sharia-compliant investors constitute a large part of the UAE population. In the current market, investors are experiencing a consistent decrease in their portfolio returns, as according to Reidin rental prices in the UAE fell between 4–7% in 2016.
Yet, this doesn’t mean investors should turn their backs on the real estate market – quite the contrary. The Dubai property market has matured in recent years, and its stability has been enhanced by the regulatory framework introduced to attract stable capital and prevent excessive speculative behaviors. Most importantly, prices are forecasted to rise in the run-up to Expo 2020, the first world expo to be held in the Middle East. Large infrastructure projects and mega tourist attractions have already been announced, and the event is expected to be a significant catalyst for rent and residential property demand. Property investments in Dubai are therefore expected to provide attractive returns in the long term.
All in all, although a negative trend has affected Dubai’s real estate market in 2016, the Arab emirate will remain an investment haven for global investors, as its property market is as advanced as some of the most popular investment destinations. As the bottom of the cycle is the best time to invest, the current trend is indeed going to provide wealth managers with safe and highly profitable investment options for their clients.
By Silvana Amparbeng, Wealth Management Analyst