The removal of sanctions on Iran could provide a timely lift for the property market in Dubai after it “flattened out” in recent months, according to the property consultancy Cluttons.
The company has published its 2015 UAE property report, which points out that Iranian nationals accounted for 12 per cent of all property transactions in Dubai in 2010. By the first quarter of this year, this figure had dropped to 3 per cent.
The head of research at Cluttons, Faisal Durrani, said if sanctions are formally lifted as expected in January or February next year, global companies looking to target the market are most likely to set up shop in Dubai.
The report points out that UAE-Iran cross-border trade stood at Dh62.4 billion last year, and that Iran’s government estimates that its oil and gas sector needs investment of Dh734bn over the next five years, as well as a Dh18bn requirement for aviation.
Mr Durrani said there is already anecdotal evidence of Iranian businesses in Dubai gearing up for growth.
“We have seen Iranian traders who have businesses in the UAE speculatively looking for more office space, retail space or industrial space,” he said. “We have also heard from our banking clients that Iranian clients are seeking loans to fund expansion.
“The expectation is that a lot of those funds will flow through the UAE’s banking system, which will help to boost liquidity levels. This will have a positive impact on the real-estate market in general.”
Firms looking for office space will also create more jobs, which in turn will create demand for housing, he added.
“This is a stream that can be linked to Iran that has been missing from Dubai’s real-estate equation for about 10 years since sanctions were first imposed.” Despite this, Cluttons expects Dubai’s market to remain weak in the short term. Rents have fallen by about 3 per cent this year, and are likely to drop by a further 1.5 per cent to 2 per cent by year end, it stated in the report.
Abu Dhabi, meanwhile, is facing affordability concerns at a time when economic growth is slowing due to falling oil prices. The report stated that the average annual rent in Abu Dhabi is Dh204,000 per property, but the average annual expat income is Dh199,000.
“There is a clear affordability issue that is coinciding with a time when demand is levelling off,” Mr Durrani said. “All the signs suggest we will see slight rent declines over the remainder of the year.”
Cluttons said that demand in Abu Dhabi is polarising, with the top end of the market remaining stable as affluent Emiratis and GCC buyers like the exclusivity that communities such as those on Saadiyat Island offer.
Meanwhile, recent steep rental growth has forced many expats to look for cheaper properties, which has led to increases in rents in more affordable sub-markets, such as the Al Ghadeer area.
“We are expecting rents to potentially slip slightly. We’ve had rents increase by 16 per cent over the last 12 to 18 months, and that has been well ahead of wage growth over that period,” said Cluttons.
However, a recent report on the Abu Dhabi property market by ADIB/MPM Properties argued that residential rents could continue to rise over the next six months as supply remains tight.
It predicts that 8,244 new homes would be added to the city’s housing stock this year - or 2.9 per cent of the total. This represents the lowest level of growth for five years.
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