Even though the oil prices have collapsed recently, the UAE real estate status has shown no panic. No investors have offloaded their properties for fear of any correction and the asking prices haven’t been slashed at all. We can all relax for now, because the current oil crisis will not affect the Dubai real estate immediately. However, if the state of things will remain like this for a long period of time, the Dubai real estate dynamic might be affected.
Phidar Advisory says in a recent report that the declining oil prices can influence the GDP, but even so, it’s unlikely for it to affect the Dubai real estate prices. However, the GDP can impact the job growth and therefore the demand, but there is no direct connection between the oil prices or the GDP and the real estate prices.
For the moment though, the transactional activity is flowing without any problem. Even so, a gap is starting to crack between the offer and the demand. Investors make a longer transaction time in general, and this translates through the fact that the sales of high-end villas (between Dh 15 million and Dh 50 million) have stagnated.
According to Andrew Chambers, the CEO of GGICO Properties, the sellers will not go for a price lower than they expect. The current state of things shows that they actually choose to hold or lease instead of selling to a lower price. The oil prices however are expected to create an agitated context, except for the case in which Opec decides to make an intervention. Until now, no key launch scheduled for this first half of the year has been cancelled or affected in some way. All the developers carry on with their projects, even those planned for the Expo 2020.
However, this is not the case with the private developers, who have to pay more attention to their cash flow. For now, the Dubai real estate market keeps its equilibrium and there is no need to worry. Even so, there are some differences between the residential market and the commercial one. As more and more office buildings have been built in the recent years, the take-up rates have grown bit by bit.
Taking into consideration the current oil prices, the commercial spaces might become vulnerable. And this might happen because businesses in general seek to enter the market or to relocate and might expect to catch the best price instead of hurrying to buy or rent.
Thankfully, this new supply of real estate options is expected to keep the rents stable throughout 2015, even though the sale prices might drop a little bit below average. Overall, the Dubai real estate market has a certain maturity that will allow it to adjust to a slower rhythm of the demand. This rhythm is set by the current oil prices, but even if the demand will be quite slow, the developers will need to adjust and to find new ways to attract customers because a slow pace does not mean that there are no buyers or renters at all.