Uae economic outlook is currently favourable and is positive for real estate

HOMEAPP & DAVIMA RESEARCH HOUSE

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UAE ECONOMIC OUTLOOK IS CURRENTLY FAVOURABLE AND IS POSITIVE FOR REAL ESTATE

 

During at least past three years, the UAE economy’s growth has been outpacing the world economy. For example, according to the published Economic Review of the Central Bank of the UAE, in the period 2022-2023, the economy grew by 7.5% and 3.6% against 3.5% and 3.2% of the global GDP growth. The growth was significantly fuelled by development of non-oil sectors of the economy.

 

Table: GDP growth rate of the UAE is fuelled by non-oil sectors

 

 

Source: IMF, forecast of the UAE National Bank

 

Consistent development of the country by the Government of the UAE which is determined by a number of strategic initiatives and institutional transformations aimed at increasing the competitiveness, diversification of the economy and rising prosperity of the population drive economic growth.

 

Visa liberalization, investment in new industries, numerous infrastructure projects, improvement of education, a favourable business environment, a neutral political position increase attractiveness of the UAE and contribute to diversification of its economy.

 

According to International Monetary Fund (IMF): “The UAE has continued to experience strong capital inflows, reflecting commodity revenue, safe haven flows, and investment drawn by social and business-friendly reforms. It has also supported notable growth in real estate prices, particularly in high-end segments in Dubai, though increasingly in some other segments.”

 

The country is experiencing the inflow of foreign investments and population which together with multiple infrastructure projects drive growth of non-oil sectors.

 

Over the past four years, the cumulative growth of the non-oil sectors of the economy has exceeded the growth of the oil sectors by several times (about 14-15% against 1-2%). In recent years, there has been an acceleration in the growth of non-oil sectors of the economy: 6% in 2021-2023 against 3% in 2016-2019. The tourism, construction, industry and financial services industries are actively developing.

 

According to reputable analytical agencies (including IMF), the country's economy will continue to grow and the combined growth of non-resource sector will continue to outpace the resource-dependent sectors in the medium term. Good track record of UAE government in achieving economic goals increases the reliability of this forecast.

 

Growth will be positively impacted by migration and capital inflows, the economic growth of major trading partners (e.g., India), as well as the country's continued attractiveness to skilled workers from developed countries, especially given its favourable tax regime. A decrease in global interest rates will be positive for inflow of investment, both foreign and local given that other investment opportunities are negatively affected by lower returns. As a result, the UAE is projected to grow at a rate well above global GDP.

 

Globally, in recent years, the share of trade flows and investment to developing countries has been increasing. The UAE PMI (business confidence indicator) is at a good level of 55% (above 50%). Competition with other countries in the region (e.g., Saudi Arabia) rises the motivation to diversify and liberalize the country and ensures stickiness of the Government to reforms.

 

We also do not exclude possibility of a further liberalisation of visa requirements for a skilled workforce in rising efforts to attracts skills and foreign capital in order to increase the competitiveness of the economy.

 

Growth of non-oil sectors is very positive for real estate sector. The sectors fuel migration of population to UAE with rising skilled workforce with higher income. Continuing investment attractiveness which is positive for capital inflows also generate demand as well as migration of reach people to the country.

 

The UAE is the most diversified country in the GCC region, with the oil and gas sector accounting for less than 30% and according to various projections this share will continue to decline due to faster growth in non-oil sectors. Non-oil sectors are the largest donors of migrants meaning that demand for real estate will sustain.

 

 

 

 

 

Table: Dependence on the oil and gas sector is relatively low

 

 

Source: Adapted from IMF data

 

 

Of the risks of the economic forecast, we would like to list: a slowdown in the economy of key trade partners, sovereign debt crises, the consequence of high interest rates postponed in time. However, these are not our base case scenarios.