With monetary policy currently tightening and interest rates rising, the UAE government’s new financial initiatives are crucial.
Those of you who have been keeping a close eye on the economic landscape of the UAE will have recently seen a robust and expansive approach to fiscal policy. This is in the face of the tightening of monetary conditions, and the associated headwinds created by rising interest rates.
With the dirham pegged to the US Dollar, changes implemented by the United States Federal Reserve have a direct impact on interest rates within the UAE. These factors have required the UAE to be adaptive and agile in a cautious economic environment.
Many of you will know that the UAE has a broad fiscal policy which is geared towards the promotion of high GDP and population growth. Here we will take a look at a few examples of how we can expect fiscal policy to continue to adapt and flourish as a counterbalance to the negative impact of rising interest rates.
The Ten-Year Proposal
In general terms, people are less likely to make large capital investments if their time horizon is limited to a two year period. With property being an illiquid asset, there is a tendency for people to only consider investment decisions with a medium to long-term time horizon in mind. The significant capital investment inherent in buying residential property is much more likely to occur if the buyer is assured of their ability to remain in the UAE.
Many nationalities living and working in Dubai don’t have the comfort of knowing that they will have their visa renewed at the end of a two year period. The proposed reforms and the introduction of a new ten year visa will have the effect of removing that element of uncertainty and as a result, will encourage capital investment.
The UAE is aspiring to become a knowledge-based economy and by creating more flexible visa regulations, will be likely to attract a younger, more highly educated, multicultural generation. This demographic will be encouraged to settle in the UAE for the medium to long-term and induce an increased level of real estate investment activity.
The Five Year Retirement Visa
From 2019 onwards, expats in the UAE who are aged 55 or over will be eligible to apply for a five-year retirement visa. This additional extension to their residence entitlement will offer retirees increased options and flexibility and will lead to the retention of existing capital investment within the real estate market.
Not only will this be of benefit to the real estate market, but it will also have a beneficial impact on other sectors of the economy such as retail and the healthcare industry.
Properties for Sale in the UAE
The World Expo 2020
Very considerable sums of money are being invested in Dubai’s infrastructure in order to prepare the city for Expo 2020. This form of fiscal stimulus has had the effect of creating employment, which in turn has been of benefit to the wider economy. More importantly, looking to the future, this investment in infrastructure will increase the economy’s capacity which will satisfy an increased level of demand, attract labour, fuel population growth, and contribute to a broadening of Dubai’s economic base.
These economic fundamentals are inherently good for Dubai’s property market.
Moreover, with millions of people from around the world congregating in Dubai in 2020 to share ideas and innovative aspirations, the emirate will be in the global spotlight, the effect of which will continue to be seen for many years to come.
Reduced Market Fees
The government’s proposal to scrap aviation, municipality and other “market fees” in order to attract more foreign investment will cut the cost of conducting business in the UAE and make the UAE the destination of choice for investment across broad sectors of the market in the Middle East.
Although many of these proposals and initiatives were announced months ago (and in some cases years) there will certainly be a lag effect before the true benefit is realised or seen within the economy.
Big fiscal decisions offering a stimulus to the economy rarely have an immediate beneficial effect beyond the creation of positive sentiment. The true impact in economic terms will evolve over the next few years and will counterbalance the current negative conditions associated with the externally imposed tightening of monetary policy and rising interest rates.
With monetary policy currently tightening and interest rates rising, this makes for a challenging property market at present. However, we are fortunate in the UAE that the government is willing to implement an expansive campaign of fiscal stimulus which will have a lasting benefit. In due course, this will position the UAE as a leading destination to work, live, and invest.
The positive and beneficial impact of the above proposals on the Dubai property market is, in my view, both exciting and encouraging.
Head of Sales and Leasing
How many years’ experience do you have in real estate & market speciality?
8 years experience in UK commercial property management and investment brokering and thereafter, 7 years experience in Dubai residential real estate.
Why did you decide to write about the ‘power of fiscal stimulus’?
In my opinion, the current economic policies are even more relevant to the Dubai property market than would usually be the case.
In just a few words, describe the UAE real estate market in 2019.
I expect price stability in prime location communities but we could experience further erosion of value in some secondary locations due to the increased supply of new residential units. A divergence in value between prime and secondary locations is possible.
This article was originally published in Property Finder Trends, Vol 5.