10 March 2016

Dubai: For Whom the Oil Tolls

An analysis across multiple countries reveals that there is a correlation between oil prices and the performance of the real estate sector. In Dubai, there is a low positive correlation between price action and transactional activity against the movement of oil prices. This partly has to do with Dubai’s low dependency of oil on its budget, as it only makes up for 6% of its expected revenue in 2016. Moreover, the current slow-down in the market can be attributed towards a cornucopia of factors, including the strengthening of the US dollar, a flurry of new housing projects, a generous supply pipeline, regional and geo-political issues.


 
A dissection of the Dubai investor base further sheds some light into the buying power for real estate assets. 46% of its real-estate investments are from nationalities that are associated with countries that derive a low portion of its revenue from oil, whereas 38% are from oil-dependent countries. This telling statistic is an indicator of the diversified source of investment inflows, and is likely to continue, leading to a cushioning of the adverse impact of oil prices.
 
A break-down of Dubai and Abu Dhabi’s employment structure reveals that the composition of employment in Abu Dhabi has skewed towards an increasing weightage in construction inline with its ambitious development of the city for its 2030 master plan. Whereas in Dubai, the weightage of employment in construction has actually decreased, indicating that the city has moved farther in diversification of its economic base. This is a further indicator of the reduced impact that oil prices will likely have on employment and therefore real estate demand.

To download the full report click here: http://blog.reidin.com/PublicReports/UAE160311.pdf