As Goes Oil, So Goes the Emirates

A new report from Cluttons finds that the 54% drop in oil prices over the past 12 months is driving a demonstrable decline in prices of real estate across the United Arab Emirates. Perhaps of more concern, the report also posits the possible implementation of a value added tax and corporation tax, taxes the UAE has avoided since its formation, could further dampen transactions as potential investors are offput by the escalating cost of buying a home. In Abu Dhabi, Cluttons found that after gaining 0.5% in the first quarter of this year, house prices fell 0.2% in the second quarter, a slip that represented the first contraction in home value since the third quarter of 2012. In Dubai, the report found that average house prices were down 3.1% year-over-year to summer 2014. The value decline is even more pronounced in the villa market where the average villa price has dropped 5.1% through the first six months of 2015 alone. As for the future? It’s mixed. Cluttons: There are a number of headwinds facing growth across the nation’s biggest real estate markets. The continued and prolonged slump in oil prices is one of our chief concerns, particularly as there is a direct correlation between hydrocarbon revenues and state spending. A further reduction in oil prices is more than likely once Iran receives the green light to begin oil exports. The impact of this will be variable across the UAE with Abu Dhabi likely to feel the impact most, given its heavy reliance on oil exports. Still, with Saadiyat Island moving closer to realising some of its flagship projects, the appeal of Abu Dhabi’s upmarket communities is rising amongst both domestic and international investors, particularly those looking to diversify their UAE portfolios or those that have been priced out of Dubai.In Dubai, weaker oil prices may stem the pace of government backed projects; however with tourism showing no signs of abating and with the Expo 2020 just over four years away, the level of job creation in the emirate’s highly diversified economy, is expected to remain stable, if not strengthen as the city gears up for the World Expo. Read the full reportView full listing (pictured top)