Investing in remote areas and other emirates

HOMEAPP & DAVIMA REAL ESTATE RESEARCH

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INVESTING IN REMOTE AREAS AND OTHER EMIRATES

Recently, there has been an increase in the prices in remote and less costly areas of UAE. This is due to the migration of people from the top locations of Dubai and Abu Dhabi due to rising rent and real estate prices in more expensive areas. At the same time, the influx of wealthy people continues to support the cost of housing in prestigious areas.

The advantages of investing in cheaper housing in more remote areas include its price availability for wider range of population and high growth potential at least in the short-to-medium term due to the influx of population from other areas. At the same time, the risks include higher potential volatility and sensitivity to macroeconomic indicators, for example, in the event of an economic slowdown and an outflow of migrants, the decrease in cost here will be more significant due to the fact that less wealthy class of population is usually more vulnerable to crises. In addition, these areas can be a concentrated place of residence of migrants from one or two countries, which makes the dynamics of prices for this property sensitive to the dynamics of economic indicators and the political situation in the countries - the homeland of the main migrants in this area.

Real estate prices in poorer emirates are less predictable compared to real estate prices in Dubai and Abu Dhabi. The emirates of Fujairah, Ras Al-Khaimah, Umm Al Quwain are currently developing local infrastructure and the economy through large infrastructure projects meaning that the economic growth and property market in these emirates are to some extent sensitive to the success of these projects. Investors currently incorporate favourable expectation of accomplishment of these projects in property prices. However, if there are delays or disruptions, the prices may dip considerably.

These emirates currently have less developed infrastructure compared to reach emirates and it is sometimes quite difficult to resell properties. Demand is mainly generated by the population of other emirates and from abroad, which brings potential volatility and insufficient liquidity.

The construction of key projects - a casino in Rasl Khaimah, Sinia Island in Umm Al Quwain – will boost infrastructure, an influx of investments, which in the future may increase demand, but the risks are higher than in more economically stronger emirates (Dubai, Abu Dhabi). Here, in addition to exposure to the risks of the general economic situation, there are risks of implementing these projects and competitive projects of richer Emirates, which can become a good alternative.

However, in poorer emirates, there is a possibility that prices will converge to those of the more developed emirates if the Government follows the strategy of developing and investing in the infrastructure of all emirates. Also, if the Government can develop road infrastructure at a rate on a par with rising traffic, then there may be more tangible increase in prices in these emirates. Currently, housing is in demand in these regions due to lower prices compared to Dubai and Abu Dhabi real estate. In this case, investors can earn additional income due to lower initial prices compared to Dubai. However, there are risks that this will not happen. In any case, this is most likely a longer-term horizon compared to property in reach emirates.