17 February 2017
Dubai: After Therefore, Because of this?
An analysis of major cities that rely on foreign inflows for real estate purchases have mixed trends on the fluctuation of the dollar.
There is a moderately strong inverse correlation between money flows in the Dubai real estate market and the US dollar. With an appreciating USD since 2011, transactions (and investment flows) have been impacted adversely as property values have become more expensive in local currency terms, even though we witness that in 2016, transactions have stabilized and even increased slightly in the latter half of 2016.
The three major foreign buyers in the Dubai real estate market are Indians, British, and Pakistanis. Indian and Pakistani investment flows have a direct correlation with the devaluations of their currencies. As the currency devalues, capital flows increase to Dubai, as investors look to hedge their investments. However, in the UK the opposite trend transpires. As the sterling devalued, more investors retreated back to purchasing property in London in order to capitalize on the weak sterling.
It is apparent is that investment flows are determined by domestic as well as international fundamentals; in Dubai, as monetary flows from neighboring countries (Saudi Arabia) attest, fundamentals against the backdrop of continued infrastructure spending appears robust. It is this that will underpin an expected increase in monetary flows in the years ahead.