How do oil prices influence the Dubai real estate market
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Decrease in the price of oil has many multiplier effects we will try and examine how a low oil price will impact real estate in Dubai. Federal government of the United Arab Emirates Investing in oil dubai real estate has relied investing in oil dubai real estate its oil wealth since the s to fuel growth and development of its country.
Reduction in the price of oil reduces its revenues and therefore its fiscal spending. In JulyUAE removed fuel subsidies enjoyed by its residents, as a measure to cut cost and improve finances. UAE is expected to post budget deficit first time since and this was one small step reduce the deficit. Therefore the price of oil has not yet had a negative impact in the volume of real estate transactions in Dubai.
One of the reasons is the Dubai labour market. Dubai is the second most popular destination of retailers present, followed by Shanghai surpassing New York in However public sector continues to be the second largest employer in Dubai with roughly Reduction in public spending might push many of these employees to cut their spending and a recent report in the Wall Street Journal hinted at even investing in oil dubai real estate cuts in the public sector.
Another reason is the tourism and hospitality sector in Dubai. According to a report by MasterCard Dubai airports capacity and frequency of flight destination is the third best in the world only behind London and Paris. Master Card Dubai tops the list with the most number of overnight international visitors: According to a report on ArabianBusiness. Although low oil prices do not seem to have much impact on the overall diversified and non-oil reliant economy of UAE, it will certainly have an impact on real estate prices.
There are two main reasons for this 1 Buyers 2 Liquidity. Most investing in oil dubai real estate these countries have oil based economies where purchasing power is determined by the economic growth fuelled by rising oil prices, it is investing in oil dubai real estate to assume in the event of budget cuts and fiscal deficits, GCC, Russian and UAE investors would feel holding cash more important especially in the economic instability.
Political and economic uncertainty may also have reduced their numbers. Second aspect which may have contributed to price decrease is the liquidity of the local banks. Government and its institutions contribute large deposits to banks, in the event of low oil prices and rising budget deficits government may be forced to withdraw from these deposits which impact availability of credit and therefore fewer buyers of real estate.
Rental market is steady and is expected to remain that way for the foreseeable future, tourism and the labour market by all accounts are growing and this will keep rents relatively stable. From buyers perspective this is a good time to buy real estate in Dubai, because of lower price and steady yield, oil price once it starts to re-bound will only have a positive impact on the real estate price. Overall we can conclude that low oil prices have not really hurt real estate market in Dubai because its price is influenced by many other factors, we can say that it is fairly steady with a slight price decrease.
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