The impact of this additional cash flow is already enough to eliminate the budget deficit this year, according to the IMF. Could it also be sufficient to prompt a recovery in house prices?
Well, we saw a far worse house price downturn in the UAE from 2009 to 2011: about double the 30 per cent fall in the latest correction. But as soon as oil prices recovered to $100, this epic housing crash was quickly reversed.
So, it should be even quicker this time around, and the upcoming new residency and company ownership rules are another reason for optimism.
Certainly anything that encourages the professional classes to stay in the UAE and buy homes will aid this market upturn, especially at the higher end that has been hit hardest by the restrictions on mortgage lending above Dh5 million.
Yet there are other things that the UAE authorities could also do to improve the nation’s international competitiveness that would help the real estate sector get back on its feet.
The main complaints I hear from residents who are potential home buyers don’t have that much to do with residency. They are more worried about the heat of the summer months and the rising cost of living.
True even the highly inventive UAE government cannot change the regional climate, apart from seeding a few rain clouds. But it could consider ways to reduce the cost of air-conditioning during the summer months, and benchmark this more closely to its main rival expat communities.
Indeed, more could surely be done to counter the rising cost of living. Why does low-speed broadband Internet connection here cost three times as much as high-speed in London?
Why are UAE supermarkets so pricey? Why are restaurants so prohibitively expensive that most residents have to use a restaurant discount voucher system, such as The Entertainer, that has just been sold for more than $100 million? Would it not be simpler just to reduce prices?
Long-term expats like myself might well appreciate being upgraded from a three to 10-year visa, if I qualify. But whether people will want to live in the UAE in the long-term will depend far more on such very down-to-earth considerations.
This year I have lost several old friends in the media business who say they just cannot afford to live here anymore, and I am talking about senior people not those trying to get started.
Others I know are pretty much on strike as far as spending locally is concerned because they feel prices are simply way too high. It’s not necessarily that they don’t have the money to spend. They just resent paying these prices and shop online or overseas.
If some of these issues were addressed, then I am sure a lot more expats would buy real estate.
That said there is another headwind that could stall any coming recovery and that is a significant increase in local mortgage rates. With the US benchmark 30-year fixed mortgage rate now topping five per cent, the dollar-linked dirham is bound to follow.
Family budgets can only stretch so far, whatever your residency tenure, and as monthly mortgage payments increase then the ability to pay higher house prices will be limited to cash buyers, and that is unlikely to be enough to move the market.
Still I don’t think US interest rates can go up that much further without causing a financial crash. So, do consider buying UAE property at current low prices as they may not last much longer.
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