Market Review

The United Arab Emirates have been established as an oil-rich economic powerhouse for over 30 years now. However, recently, its rulers have set out to build (quite literally!) a more diverse economy. As a result, a construction boom has taken place and the UAE has become perhaps the fastest moving emerging market.

Now that the first projects are being completed and the dust has settled a little, it is perhaps a good time to examine the current state of the UAE market and look at prospects for the future.

The UAE consists of seven emirates: Abu Dhabi, Ajman, Dubai, Fujairah, Ras al Khaimah, Sharjah and Umm al Quwain. Abu Dhabi is the largest emirate geographically and the political and economic capital, while Dubai currently has the largest property market.

With GDP of $168bn (a 35% annual increase according to the Ministry of Finance and Industry) the UAE was the fastest growing global economy in 2006. It is now the second most prosperous in the region (after Saudi Arabia) and the 38th worldwide. The economy is highly dependant on oil, but manufacturing, services and construction, are faster expanding sectors. Recent reports suggest that there are now $350bn worth of construction projects ongoing.

Inflation is the main threat to the economy. The Ministry of Economy reports the figure reached 9.3% in 2006. It is also worth noting that since the UAE dirham (AED) is pegged to the US dollar, prices in 2007 continue to seem to represent extremely good value for those buying in currencies which are performing well against the dollar, like Sterling. However, the picture might not seem quite so favourable to those buying in other currencies.

Dubai is the largest city (population 1.5m), although only 10% of its economy is based on oil. Dubai has declared its aim to become a world class city and the leading regional destination for business and tourism. The population is growing fast. According to the Ministry of Planning, the population will reach 2m in 2010 and 4m in 2017.

Currently around 8,000 new immigrants arrive each month. Tourism has also been booming. According to the Department of Tourism and Commerce Marketing numbers grew 228% to 6.3m in the ten years to 2006 and 22m visitors annually are forecast by 2020.

Developers in Dubai are blessed, in the sense that no other city in the world gives an opportunity for international exposure and opportunities to record such an accelerated growth. It is because one has to sustain this growth rate and also have a diversified portfolio regionally, if not globally.

To a question whether the market will slow down, Experts pointed to supply/demand scenario, “Due to insufficient number of economical housing and in general less supply of housing units than in demand, eventually the market will undergo readjustments. However, the supply/demand scenario in the real estate market also depends on how the government handles immigration. In 2006, around 292,000 immigrants came to Dubai and if the flow continues at this rate, there will be enormous demand for accommodation.”