Dubai residential market is expected to record Dh61.9 billion worth of villa and apartment transactions during the first five months of this year despite record spike in worldwide inflation, latest report shows.
Global property consultant Knight Frank believes that the impact of global inflation on the UAE economy and Dubai’s residential market is likely to be limited for now due to effective government measures.
“There are many reasons for cautious optimism when it comes to containing inflation in the UAE. The government’s extremely diversified imports strategy, steps to boost food security in recent years and the strength of the US dollar, which is curtailing imported inflation, are all huge positives,” said Faisal Durrani, partner and head of Middle East Research at Knight Frank.
"By far the most effective measure is the government’s pre-emptive stealth move to freeze the price for 11,000 basic goods, including milk, bread, meat and poultry. The policy has been bolstered by the surge in crude oil prices, which is going to underpin a sharp turnaround in economic growth,” Durrani said.
The relative positivity in the economy is percolating through to business activity levels, with the latest PMI reading for the UAE’s all-important non-oil sector holding steady at a 12-month high in April as orders continued to rise, however the pace of recruitment appear to have slowed slightly.
“The April PMI readings indicate that businesses are clearly nervous about rising cost pressures. Two immediate pressure release valves are a reduction in the pace of new hires and passing on costs to consumers. The latter is often seen as a last resort and we’re not seeing that yet," Durrani said.
Elsewhere, the rising inflation poses a limited threat to Dubai’s residential property market, according to Knight Frank’s analysis. Knight Frank, mortgaged buyers for villas and apartments account for just 18 per cent of Dubai’s residential market, by value, at present. Last year the figure was nearer 40 per cent and in 2007 just over 50 per cent of transactions were financed.
For the residential market however, Durrani said the bulk of deals at the top end of the price spectrum are cash purchases, in large part due to the unrelenting influx of ultra-high net worth capital targeting Dubai’s most expensive homes. So, with cash remaining king, the risk to the housing market is low for now. Furthermore, with house price growth in Dubai this year expected to hover at around 5-7 per cent for the mainstream market and 12-15 per cent for the prime markets, residential property in the emirate is still an excellent inflation hedge,” Durrani concluded.