In retrospect, 2021 was a seminal year for the Dubai property market as we emerged from a seven-year bear cycle that had lowered capital values by 40 percent to 50 percent since their peak in early 2014 in most micro-markets.
The catalysts for the turnaround were both global macro capital flows, as well as the hugely successful policy responses of the UAE government to the pandemic and its resulting socioeconomic trauma.
The macro catalyst was primarily the collapse of most emerging market currencies at a time when the king dollar is on a rampage, with the US Dollar index up 12 percent in the past year.
So, it was a no brainer for investors across the developing world to snap up discounted villas and flats in Dubai, if for no other reason than to preserve the purchasing power of their wealth.
Geopolitical shocks only amplified capital inflows into the luxury villa segment. Note that Dubai and Moscow were the only two global cities where prices rose by 40 percent in Savill’s prime property index.
Dubai’s stellar vaccine record and liberal social milieu made it a natural magnet for affluent buyers. Expo 2020 was the icing on the cake, a steroid shot for local retail and hospitality.
With US inflation at 40-year highs in 2022, I expect the US dollar to continue on its epic rise and thus ignite even more investor interest in hard currency dirham assets.
Ominously, the ongoing carnage in US Treasury bond yields means that home mortgage rates will rise significantly in this cycle too, which is negative for a historically credit sensitive residential segment.
Other than luxury villas, where the price spiral was due to miniscule inventory, there is still a structural glut in the middle-income segment, though affordability metrics are much better than in the peak of the last cycle in summer 2014.
With Brent crude at $100 and the Ukraine war triggering a new exodus of Russian investors to the Gulf, I expect the Dubai property market to remain resilient with a 5 percent rise in rents and home prices.
The market now offers liquidity, an inflation hedged income flow and safety in one of the world’s preeminent safe haven, hard currency business hubs. This is a compelling argument for investors both in UAE and abroad.
The value of property deals doubled last year and sales volumes will remain robust as developers launch new projects. This is attested by Emaar’s rise from AED 4 to AED 6 a share on the DFM.
The biggest risk now is that excessive Federal Reserve rate hikes or policy errors will trigger a US recession, whose shock waves could gut oil prices and housing values worldwide.
Note that the Chinese property bubble has collapsed with a vengeance and Europe is in chaos since the Ukraine war.
It is far too dangerous for investors to assume that the strong price rise of 2021 can be extrapolated into the indefinite future as the macro storm clouds darken.