Foreign investments spur Dubai's growth |
Khaleej Times - 11 August, 2012
The emirate of Dubai, whose real estate market is on a fast track to recovery, is reemerging as a safe haven for foreign investors, say analysts.
A major reason is an influx of foreign money using the emirate as a safe haven. “A lot of people in the Middle East, Russia, Pakistan, and the Asian subcontinent are looking for a safe haven,” said Farouk Soussa, Middle East economist at Citigroup in Dubai. “Perceptions are that the real estate market has bottomed out. If you are looking for more long-term investment, the market in Dubai seems reasonable.”
Because of the importance of real estate in Dubai’s economy — it contributed about 13 per cent of gross domestic product last year, almost as much as manufacturing — a healthier property market is likely to have a string of positive effects. Among other things, it may reduce the pressure on state-linked companies that are restructuring their loans. Figures released by the Dubai government this week showed Indian citizens were the main buyers of luxury apartments and commercial space in the Burj Khalifa, the world’s tallest tower, during the first half of 2012, spending $ 222 million. Iranians came second with $ 128 million.
For the Indian buyers, Dubai property is a refuge from currency depreciation that has taken the Indian rupee down about 20 per cent against the US dollar since the third quarter of 2011.
Money from Afghanistan, created by international aid there, is believed to be flowing to Dubai as nervous businessmen prepare for the withdrawal of most foreign troops from that country by the end of 2014.
Foreign investors bought real estate assets in Dubai worth Dh28.3 billion ($ 7.7 billion) in the first half of 2012, up 36 per cent over last year, Dubai government figures show. “Dubai’s property market will improve, but gently. Not at the 40 per cent growth per quarter that we saw during the boom,” said Loic Pelichet, Dubai-based assistant vice-president for research at NBK Capital.
There are other reasons to think the market may continue recovering for some years at least. One is the fact that by the standards of the top international cities, Dubai is still fairly cheap in the wake of its market decline. Secondly, Dubai may attract new flows of safe-haven money even if its existing ones start to dry up. The UAE dirham’s peg to the US dollar will help to make Dubai attractive if, for example, a partial collapse of the eurozone sends funds fleeing from European currencies.
Though the recovery is not being felt throughout the market, positive signs have mounted in the first half of this year. Real estate agent Knight Frank’s quarterly prime global cities index showed apartment prices in Dubai rallied over five per cent in the second quarter compared with six months ago.
“We see Dubai real estate performing well over the medium term,” said Graham Stock, strategist at frontier fund manager Insparo in London, adding that Dubai to some extent resembled London in the way that safe-haven buying by foreign investors was aiding property prices. — Reuters
Average apartment rents in Dubai are estimated to have increased two per cent in the second quarter, according to a report by property consultants CBRE. Particularly well-situated communities such as Emirates Living and Downtown Dubai may have seen rises of five to eight per cent quarter-on-quarter, it said.
The real estate recovery has supported a rebound in Dubai’s stock market. Shares in its biggest property developer, Emaar Properties, hit a 15-month high last week and are up 32 per cent this year — though much of the company’s rising earnings are due to its successful diversification away from residential real estate into hotels and retail.
Dubai lures buyers from the Indian subcontinent and Iran because of geographical proximity, easy access through its well-developed web of international links, and large Indian, Pakistani and Iranian communities. Meanwhile, the UAE stability during violent uprisings around the Middle East has attracted Arab money to Dubai.
The exposure to the dollar’s exchange rate could turn sour if the United States is caught in a debt crisis.
But in that case, the comfortable budget positions of Gulf economies — the UAE is expected to post fiscal surpluses of over five per cent of gross domestic product this year and next, according to a Reuters poll of analysts — mean that more than almost anywhere else, the Gulf will be able to spend its way out of trouble. That could attract investors from around the world to Dubai.