DUBAI: Inflation is likely to have little impact on the economy of the UAE, real estate agency Knight Frank has claimed, as it estimated that between January and May 2022, villa and apartment transactions came to AED 61.9 billion (16.8 billion).
Head of Middle East Research, Faisal Durrani, explained in a statement: “There are many reasons for cautious optimism when it comes to containing inflation in the UAE.”
“The government’s extremely diversified imports strategy, steps to boost food security in recent years, and the strength of the US dollar, which is curtailing imported inflation, are all huge positives,” he added.
The statement said that the government’s stealth move to freeze prices on 11,000 basic commodities, including milk, bread, meat, and poultry, was by far the most effective measure.
The surge in crude oil prices has favored this policy, which is expected to lead to a rapid turnaround in the economy, it added.
According to Durrani, the majority of residential deals at the high end of the price spectrum are cash purchases, largely due to the unrelenting inflow of ultra-high net worth capital that is targeting Dubai’s most expensive homes. Consequently, the housing market at present is not at risk, since cash remains king, he said.
House prices in Dubai are expected to grow around 5-7 percent this year for the mainstream market and 12-15 percent in the prime market, Durrani said. He added that Dubai remains an excellent inflation hedge.
Knight Frank cited data from Oxford Economics indicating a rebound in Abu Dhabi’s GDP from about 0.5 percent to just over 6 percent this year.
A widespread return in global travel, and the emirate’s appeal as a global tourist destination, are likely to boost Dubai’s GDP to a similar level to last year’s, it added.
Head of Mortgage and Debt Advisory at Knight Frank, Ashley Bayliss, said: “The UAE’s fiscal policy correlates with the US, and the recent 50 basis point hike in interest rates to 2.25 percent does mean higher outgoings for mortgaged households going forward, however it remains comparable with other international prime markets.”
As of now, only 18 percent of Dubai’s residential market is made up of mortgaged buyers for villas and apartments, according to the statement. The figure was nearly 4 percent last year, and over 50 percent of transactions were financed in 2007.
At the end of May, there was almost AED 38 billion of financing extended across all real estate asset classes, according to Bayliss.
Based on the number of mortgaged deals seen so far in this year, 2022 could be on track to see the second-highest level of mortgaged deals in the last five years for the entire real estate market, she added.