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Drivers of growth and decline in the UAE real estate market

Dubai Skyline View
Cityscape’s Lucy Whittaker sits down with Dr. Christopher Payne, Chief Economist at Peninsula Real Estate to discuss the UAE real estate industry’s past and future trajectory.

Since 2014, real estate in the UAE has been a bear market yet recent months have seen an uptick in the sale of town houses and villas. What were the driving factors of this?

From 2011 to 2014 oil prices averaged over $100 a barrel. This meant that governments in the region were able to save significantly and run large fiscal surpluses, while also investing in diversifying the economy.

At the end of 2014, the oil bull market came to end and prices, roughly speaking, halved. This put fiscal constraints on governments in the region; and fiscal controls lowered aggregate demand growth rates. In turn, this slowed down the rate of population growth, resulting in insufficient demand for real estate.

During the pandemic, Dubai’s young population, abundant health services, and successful vaccination programme allowed the city to stay generally open to business and travel. At the high-end, this caused a spike in interest in people coming to the region, which has boosted the real estate market.

Photo_Christopher PayneThe UAE real estate market has traditionally attracted high levels of foreign capital. What are the main drivers of foreign investment in the region?

Dubai has established itself as a regional hub and has implemented favourable visa, lifestyle, and foreign ownership reforms, which have allowed the UAE to stay ahead of the curve regarding foreign capital investment.

Yet it’s important to note that foreign investment in real estate remains focussed on the residential sector.

In the wake of the pandemic, what is going to drive recovery in the UAE real estate industry?

Investment is certainly a key driver, especially in Dubai where over 85% of the population are expats. Post-COVID-19, a great number of people are seeing Dubai as an attractive place to buy property. There is anecdotal evidence suggesting that the emirate has become a ‘covid bolthole’, with entrepreneurs and business owners viewing Dubai as a desirable location to live to see out the pandemic.

There is a very strong correlation between economic recovery and population growth and fundamentally, that’s the key driver here.

Despite the recent market decline, over 46% of real estate professionals forecast growth for the GCC property market over the next year, Cityscape survey data shows.  In which sectors and locations do you see the greatest potential for growth?

At an institutional level, there’s excellent value and potential to be found in the logistics and infrastructure space, such as distribution centre logistics, commercial, and database space. Traditionally in this region, we have not seen a large proportion of e-commerce transactions in comparison to markets elsewhere. So that’s a potential growth area.

“More broadly, we see value emerging in segments of the office market; but a pick-up in transaction volumes will require realism from both buyers and sellers as to where the market is right now.”

Recovery, growth, decline, stability, volatility? What do you think the next 5 years holds for the UAE’s real estate industry?

Post-COVID recovery certainly, but I’d like to see a move from recovery to stability.

The UAE has seen a lot of volatility over the past 15-20 years. Greater stability would provide a solid backdrop to investors and lay the groundwork for long-term price strength in the market.

Across the broader real estate market, we don’t necessarily foresee boom conditions as countries in the Gulf are still focussed on fiscal stability.

Chris, please can you provide some insight into you career journey to date and outline the core responsibilities of your current role?

My career trajectory has always been guided by my desire to learn. Learning new things allows me to keep my interest levels high and remain motivated.

For the past two years, I have held the position of Chief Economist at Peninsula Real Estate, focussing mainly on research and strategy. A lot of my time is spent looking at investment opportunities, analysing the macro-economic environment in the Gulf, and providing quantitative risk/return profiles and assessments of MENA countries and sectors.

When I moved to the Gulf seven years ago, I worked as the Head of Research at the Kuwait Institute of Banking Studies and after that worked as the Chief Economic Advisor to the governor of the DIFC.

Prior to that I undertook various roles at large companies including PWC, JP Morgan and Bloomberg, in London and Washington DC. I also took time out from my career to study for a PHD.

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