How hard will UAE’s economic growth be hit by Global Recession?

How hard will UAE's economic growth be hit by Global Recession?

The UAE is ranked 31^st in the world in terms of global competitiveness, out of 134 countries and is the second highest ranked economy in the Arabian Gulf after the Kingdom of Saudi Arabia, according to the World Economic Forum's Global Competitiveness Report for 2008/09.  Here, the Gowealthy Research Team is analyzing the impact of global recession on the UAE's economic growth in 2009.

On rating, the Gulf economies should score pretty well, particularly as efforts to control inflation by governments around the world are going to have an unexpected side-effect - Higher Oil Prices. These will keep money flow into oil-rich Gulf States intact, preventing their formerly bullish economies from imploding. Oil hovering between US$ 40 to 50 a barrel will sustain current ongoing projects in the Gulf markets.

 

Modest growth levels will be in fact, restored pretty quickly. According to a study by EFG Hermes, UAE will attain a growth rate of 3.1 per cent in 2009. However, this will not curb a ‘necessary correction' in its real estate sector, as Mohammed Alabbar, Chairman of Dubai Advisory Council said.  The crisis is all relative in today's global economy - but the effects will be less severe in the Gulf than elsewhere and recovery prospects much better, going by the macroeconomic stability of the region. In terms of government surplus, the UAE ranks 3^rd in the world and 2^nd in the region after Kuwait.

UAE Real Estate Industry in 2009

A shake-out in the sector, especially for off-plan property is in the offing this year. The long awaited ‘rationalization' of the market should curtail a meltdown in property prices and make long-term future prospects stable by equating supply and demand. Indeed, this could enhance the long term outlook for house prices by restricting supply growth. Meanwhile the Government of the UAE is closely supervising development growth to ensure that demand remains above supply and also considering limiting future supply in order to stem a price slide. Moreover, with construction costs declining in 2008 by 20 to 30 per cent ongoing projects are expected to continue as scheduled.

The confusion and chaos that prevailed in the UAE real estate sector in the immediate aftermath of the global credit crunch have prompted authorities to adopt a more pragmatic approach. Analysts have long predicted that the government of the UAE would ensure a soft landing in the event of a real estate correction expected in 2010, which has come much earlier because of the global financial crisis. Consequently, we foresee the issuance of more regulations and legislation along the lines of Escrow Account Law, Laws No. 13 and 14, by the government to streamline transactions in the realty market.  Dubai's Real Estate Regulatory Authority (RERA) has been giving some indications as to this, quite recently.

In a landmark move, RERA launched the online property registration scheme, ‘Oqood' last November which will ultimately create an online Property Price Index (PPI). Moreover, in a new system to be introduced this year, Dubai property developers will be ranked by financial stability and market experience. A regulation requiring developers registering off-plan projects to fully own the land first will also be implemented. The evaluation is aimed at reducing the number of developers, and to give RERA greater control and reinforce investor confidence by arresting fraudulent activities and contractual disputes. Other measures under consideration include easing financial repayment terms for property buyers and encouraging consolidation in the real estate sector. 

RERA lays down rules to protect property market Although no legislative decision has been made, Rera has told developers that buyers need pay no more than 20% of the cost of a property as an initial installment. The remainder could be paid in installments that are linked to the progress of the construction of the project and are commensurate with how far advanced the building is. If payments over these amounts have been made and construction has yet to begin, investors could have a case for holding payments until the project is underway, although advice on specific cases should be sought. These steps are guidelines rather than law and are expected to safeguard investors along with escrow accounts. An 11-member Real Estate Development Trust Account Department has been set up by Rera to monitor the use of the escrow amounts, and ensure that amounts beyond the 20% are not collected until construction begins. More safeguards for Developers In answer to developers' worries as to the increasing number of investors who find themselves unable to pay installments and consider defaulting, Rera is considering proposing amendments whereby developers may be able to hold off repaying balances to buyers who are breach their contracts until the unit is resold. The city's developers will be graded according to their liquidity, market experience, and the number of projects they have undertaken and completed. The scheme is being designed to increase investor confidence in the city's projects, and has generally been warmly received, despite some suggestions that smaller companies would be frozen out of the market. Rera has also finalised its residential rental index, which has been sent on to the Ruler's Court for final approval. The final unveiling is expected by the end of the month, and the figures therein will not be mandatory, but rather serve as an indication of rents and tenancies for particular areas.