Dealing with the Risk of Inflation and the Hype in the Property Market Panel Discussion

Published July 19th, 2007 - 10:24 GMT

The Banking & Finance Subgroup of the Dubai Quality Group today chaired a seminar on the much discussed and debated UAE property market at the premises of Dubai Commercial Bank, who sponsored the event. In attendance were brokers, financial advisors and property advisors from various institutions and companies.

Osama Hamza Al-Rahma, The Chairman of Banking & Finance Subgroup, introduced the discussion by explaining the role of the subgroup and how DQG is committed to improve the quality of the banking and finance standards in the UAE, through industry participation.  Mr. Al Rahma explained, “The Finance sector in Dubai is growing rapidly, but we face many challenges in ensuring quality services for the public, employees and corporations that engage with institutions and regulators. Our role as the banking and finance subgroup is to actively promote the quality standards and world-class service measurements required in the UAE”.

The panel consisting of experts from HSBC, The American Academy of Financial Management and the first real state price index in the UAE, discussed the problems of rising inflation, rent controls and the hype in the property market.

Shahid Umerani, from JAJ Consulting who provides property and asset valuation services in addition to extensive strategy and management consulting in the region revealed: “Some apartments prices in the UAE have already settled in 2007 with a downward adjustment of close to 10 per cent. However, with increasing interest in Dubai as a business location, with inflation remaining high and interests rates remaining low for the foreseeable future coupled with an increase in mortgage business, we believe there is still a strong outlook for positive growth in the medium and long-term”.

Michael Preiss, a strategist from HSBC Private Bank commented that the paradigm of emerging markets was changing as a result of a weakening US dollar, making the Dubai property market very attractive to non-US dollar based investors. He also commented on the role of Dubai as a financial market saying, “Just as Emirates Airlines has created a hub as an airline for travelers between Europe, Asia and Africa, we could see Dubai become a hub for capital flows. In the future we’ll see Kenyan Shillings being traded against Turkish Lira or Indian Rupees through Dubai, and we’ll see the role of DIFX become increasingly important for global companies looking for tax efficient business environment. All this will contribute to positive growth in the property market, but without relief for inflation”.

Prof. Brett King, the moderator drew comparisons to the Hong Kong property market that suffered a 40-60 per cent drop in residential and commercial properties in 1997 due to the handover and in 2003 due to the SARS crisis because of speculation, overvaluation and hype with prices pushed up through the roof by government and industry limiting supply. The debate of the panelists questioned whether the pent up of demand was enough to support the future supply of low and mid-range properties currently under construction, or would prices reduce as new properties become available in 2008 onwards.

The general consensus of the panelists and the audience alike was that rents would likely have to come down in the near term as they were getting out of reach of the majority of Dubai residents. However, the core property market still had room for healthy growth over the next few years, with no need for a major correction. The stabilization of rent prices would not be likely to adversely affect property prices because they were already significantly higher than the real cost of financing properties in the current low-interest environment and institutional investors already had this factored in.

The speculation surrounding Dubai’s government potentially reducing local company ownership requirements to less than 50% of the total shareholding was also noted as a factor that could accelerate growth in the property market even faster in the near future.



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