2023-05-22-莱坊-Rising_inflation_Summer_2022_4页_3mb

Summary of the Document: Rising Inflation and Its Impact on Dubai's Residential Market

Core Content

The document discusses the current state of inflation in the UAE and its implications for Dubai's residential real estate market. It highlights that while global inflation is rising, the UAE and Saudi Arabia are experiencing relatively low inflation levels. The UAE's Consumer Price Inflation (CPI) stood at 2.5% at the end of last year, and it is expected to remain stable at 2% - 2.5% for the next 12 months.

Main Reasons for Stable Inflation

• Diversified Imports Strategy: The UAE has a diversified approach to imports, reducing the risk of imported inflation.
• Government Intervention: The UAE government has historically intervened to cap price increases during inflationary periods. In April 2022, a new policy was introduced requiring retailers to seek prior approval before raising prices on 11,000 commodities, including essentials like food and dairy.
• Fixed Exchange Rate: The UAE maintains a fixed peg to the US dollar, which has strengthened recently, helping to offset some of the inflationary pressures from imports.
• Business Confidence: Despite rising costs, business confidence remains in expansion territory and reached a 19-month high in May 2022. However, businesses are still cautious about cost pressures.

Impact on Dubai's Residential Real Estate Market

• Price Growth: Dubai's residential market has seen significant price growth, with Prime residential prices (including areas like Palm Jumeirah, Emirates Hills, and Jumeirah Bay Island) surging by 58.9% over the last 12 months.
• Overall Growth: House prices in Dubai increased by 10.6% in 2021 and 2.6% in the first three months of 2022, leading to a 11.3% increase compared to Q1 2021, the highest annual growth since January 2015.
• Affordability: Dubai remains relatively affordable compared to global cities like London and New York. For instance, US$1 million can purchase approximately 1,330 sqft of prime residential real estate in Dubai, which is about four times more than in those cities.
• Ultra-Prime Sales: There has been a record spike in ultra-prime home sales (US$10m+), including the sale of the most expensive villa in Dubai at US$76 million.
• Market Dynamics: The majority of high-end residential deals are cash purchases, driven by the influx of ultra-high net worth individuals (UHNWIs) from various global markets.

Impact of Rising Base Rates

• Base Rate Increase: The UAE Central Bank recently raised the headline base rate by 50 bps to 2.25%, aligning with the US Fed's fiscal policy due to the Dirham's fixed exchange rate.
• Mortgage Activity: Mortgaged buyers accounted for 17.9% of the residential market by value in the first five months of 2022, down from 40% last year and 52% in 2007. However, the total amount of financing extended across all real estate asset classes reached AED 38 billion by the end of May 2022.
• Market Stability: The threat to the residential market's stability from rising base rates appears low. The market is expected to see moderate growth, with mainstream prices rising by 5 - 7% in 2022, and prime prices by 12 - 15%.

Residential Real Estate as an Inflation Hedge

• Future Growth: Residential real estate is still considered an excellent hedge against inflation, as price increases are expected to outpace inflation.
• Top-End Performance: The top end of the villa market is expected to continue outperforming the mainstream market due to sustained international UHNWI demand and a limited supply of high-end properties.

Key Contacts

• Faisal Durrani: Partner, Head of Middle East Research
  Email: Faisal.Durrani@me.knightfrank.com
  Phone: +97144267698

• Ashley Bayliss: Partner, Head of Debt & Mortgage Advisory
  Email: Ashley.Bayliss@me.knightfrank.com

• Andrew Cummings: Partner, Head of Prime Residential, Middle East
  Email: Andrew.Cummings@me.knightfrank.com
  Phone: +971506138350

• Shehzad Jamal: Partner, Strategic Consultancy (Healthcare, Education, Real Estate)
  Email: Shehzad.Jamal@me.knightfrank.com
  Phone: +971 50 3832 491

• Imran Hussain: Partner, Head of Residential Valuations
  Email: Imran.Hussain@me.knightfrank.com
  Phone: +971503832491

• Dean Foley: Associate Partner, Head of Residential Project Sales & Marketing
  Email: Dean.Foley@me.knightfrank.com
  Phone: +971501060784

Recent Publications

• The Saudi Report 2022
• Dubai's Covid Comeback - 2022

Important Notice

• This report is for general information only and should not be relied upon for decision-making.
• Knight Frank does not accept responsibility for any loss or damage resulting from the use of this document.
• Reproduction of the report is not allowed without prior written approval.