Growth in Dubai Economy Could Reach 5.6%

According to one advisory firm which specializes in property, economic growth in Dubai could reach a level of 5.6% before the year is out. According to recently-formed Phidar Advisory, if the global economy continues to perform well the economy could well hit this high level. However, the firm also warned that a short-term correction could be due for the real estate sector in the Emirate.

Phidar’s report also identified continued increases in rents and sales prices in the Emirate’s residential market throughout the second quarter of 2014. However, growth rates slowed significantly and this resulted in yield compression for both lease rates and sale prices.

This is not the only piece of encouraging news about Dubai’s economy to emerge recently. A recent report from the International Monetary Fund (IMF) suggested that Dubai was benefiting from an improved ability to finance debts, based on more conservative spending and stronger growth in the economy. Phidar drew on data in this report to come up with its own predictions.

According to Phidar: ” even if the global economy shows a tendency to apply the brakes, Dubai will continue show an upswing of 3.5 per cent GDP (gross domestic product) growth, and if it stays vibrant and robust then the emirate could hit as high as 5.6 per cent annually.”

Phidar were not alone in making this prediction. Similar conclusions were reached in the most recent forecasts from the Institute of International Finance (IIF). According to the Institute’s deputy director for Africa and the Middle East, Garbis Iradian, “We see Dubai growing at 5.6 per cent in 2014, driven by tourism, transportation, and trade.”

However, neither were Phidar alone in tempering their predictions with a note of caution. The IMF’s report warned that, in the event of a serious downturn hitting the global economy, Dubai’s economy may be vulnerable.

Phidar’s report also identified a number of other interesting facts about the current state of Dubai’s real estate sector. It noted that, in the first three weeks of the third quarter of the year, single family homes saw shrinkage of 4% in nominal prices while apartments fell by 0.6%.

However, due to the danger of overheating the report suggested that individual properties should be traded for yields of 6% or higher to account for increased levels of risk. However, net yields have in fact been compressing recently. Market transparency also seems to be taking backwards steps, and this is partly linked the UAE Central Bank’s recent mortgage restrictions designed to reign in lending.

“In the short term,” the report says, “this will likely lead to a price correction, following a two-year period of exuberant investor sentiment.”

Nonetheless, the report’s assessment is that: “Residential development opportunities are still ample in Dubai, but the market would benefit exponentially from developer specialization, particularly in the most under-supplied assets. In this case middle-income housing could be a tangible and powerful catalyst.”

Article source: http://www.nuwireinvestor.com/articles/growth-in-dubai-economy-could-reach-56-62137.aspx

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