Dubai has gained a lot of reputation amongst investors due to its high investor confidence, low cost, and affordability. Houzon expects the impact on Dubai Property Market and the UAE economy will be limited by global inflation due to effective government measures such as the Ministry of Economy’s move to curb inflation.
Several experts and analysts point to the government’s diversified import strategy, and some other recent initiatives aimed at increasing food security as well as the strong US dollar, which has led to lower import prices, as positive factors for the economy.
Despite the global impact inflation has on the economy and the property market, the economy and property market in the UAE will not be negatively impacted by it. The residential market in Dubai has recorded AED61.9 billion with villas and apartments for sale during the first five months of this year in spite of the unprecedented spike in worldwide inflation.
Inflation In UAE & Bigger Economies
For the developing and developed economies, the inflation rates in May 2022 were recorded as follows: the USA: 8.6 percent, UK: 9%, India: 7:04%, and the UAE: 2.6%. The average inflation rate in UAE in the last two decades has been 2.2 percent, which is a number that all economies thrive for.
The inflation rate in UAE is equivalent to just 25-30% of the biggest economies hence the purchasing power of the residents of UAE is still in a good position as compared to the developed nations like the US and UK.
Mortgages, Rentals, Banks, & Inflation
May 2022 is slated to be the best May in the last 13 years, according to data from Dubai Land Department. Compared to total transactions in the real estate market of Dubai, the mortgage transactions accounted for around 27 or 28 percent, which is less than one-third of total residential transactions.
As rents have increased, more and more people are now taking out mortgages to buy a property in Dubai. and paying them off over the years. This is the reason why the Dubai property market is booming since people are preferring to buy a property on a mortgage even with a high-interest rate than putting the money in renting one. So the impact on the overall market has been a positive one from this site as well.
For those with long-term goals, buying rather than renting properties in Dubai has become increasingly appealing in the past 12 to 18 months. Recent launches in the Dubai real estate property market have soared in sales because of their desire to hedge against inflation, with some of the properties in Dubai selling out within their days of launch.
However, one of the biggest challenges for most banks has been keeping up with the current growth of the market. Approximately 70% of residential property transactions in Dubai happen via cash, bank, or manager checks, not mortgages, so fewer than one-third of property transactions in the last five months involved mortgages.
For now, cash still rules the housing market in Dubai, as most of the top-end deals are cash sales due to the influx of individuals that have an ultra-high capital net worth to buy the most expensive properties.
Ministry Of Economy’s Price-Freeze Policy
As a part of the price-freeze policy that has been approved by the Ministry of Economy (MoE), basic consumer goods in the UAE will be divided into two main categories. This is mainly being done to curb inflation.
Over 11,000 commodities are included in the first group such as dried milk, fresh milk, fresh eggs and chicken, sugar, bread, flour, cooking oil, and so on. The Ministry Of Economy website must be used to obtain prior approval for any price increases on these items by the supplier due to the costs of high imports.
Commodities in the second group consist of chocolates, biscuits, cheese products, confectionaries, ice cream, juices, housing tools, and detergents amongst others. MoE clarified that this category of suppliers does not require prior approval if they wish to increase their prices. A price hike that is unjustified or unwarranted is a violation of price control, so the owner may be in trouble.
According to the ministry, it continues to monitor the most basic and popular commodity prices, together with local and national economic departments and regulatory agencies. For most commodities traded in the world, the ministry matches up these prices with FAO International Price Index.
If we put everything in nutshell, Dubai’s Property Market has been outperforming itself constantly and will continue to do so at least until the end of 2022. The major reasons are the price-freeze policy by the UAE Government and the higher returns in Dubai Property Market which acts as a hedge against inflation for the investors.
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