Impact of Brexit on the UAE real estate market

The most damaging factor is the uncertainty the political situation is creating, especially from a once stable country

The outcome of the UK referendum to leave the European Union has certainly been a shock to the global economy. Even though for some time this was a very close vote, it’s fair to say that most analysts did not predict the Leave campaign to win.

Given the unprecedented nature of the situation, it is difficult to state with certainty how this will play out and the impact it will have on the real estate market in the UK let alone the UAE. However, it is clear that the ramifications of this decision will be felt on a global scale. The financial markets have had a lot to process with David Cameron announcing his resignation, the pound dipping to its lowest level versus the dollar since 1985 and Nicola Sturgeon indicating towards another Scottish independence referendum. Rumours also abound of banks already in the process of shifting thousands of jobs away from the UK and the UK credit rating being on negative watch. All of this has been witnessed in just one day, which has led to trillions being lost in value across global stock markets. With the negative sentiment set to continue it is difficult to see short term stabilisation.

UAE markets have already reacted to the UK vote with the benchmark index closing nearly three per cent point down by early afternoon on Sunday. The potential flow of monies may provide further insight into the effect on the UAE real estate market. With the pound falling against the dollar and the dirham’s peg to the latter, some UAE investors could face a once in a lifetime opportunity to buy real estate in the UK on the cheap. One also worries about what will happen to interest rates alongside the currency situation for the Euro and Pound, which is likely to lead to a ‘wait and see’ approach from UK/Continental European investors putting money into the UAE market, especially the Dubai residential sector. One would expect there may be a drain of money from expats taking advantage of a weak sterling combined with lower purchasing power for expats who are not able to leverage their home based savings more effectively. Any UAE capital already tied up in UK real estate, may lead to a general outward flow of capital from the UAE and an unforeseen drop in demand for UAE real estate.

The current turmoil, coming at a time when the region is grappling with oil price instability, could mean that more people would prefer to hold on to their capital and see how things shape up, thus waiting for a longer term market reaction. This would result in investment decisions taking longer and as demand reduces so may prices in the UAE market. Given the reluctance of UAE owners/sellers to decrease prices further to ensure sales, this could lead to fewer transactions in the market.

The most damaging factor is the uncertainty the political situation is creating, especially from a once stable country. Investors detest these kinds of situations and calming statements from Mark Carney, Governor of the Bank of England, on measures to ensure stability do help, but the uncertainty on when or if Article 50 of the Lisbon Treaty will be enacted and what form of the next government will be in place, overrides the Governor’s good intentions.

The following weeks will be critical in providing a clearer picture of the real impact and the UK needs to provide a measured way forward to help calm world markets.

Amit Shukla is Senior Associate, Development Advisory and Real Estate Research at Cavendish Maxwell

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