Dubai property market untouched by inflation
Dubai property market untouched by inflation 
According to a study by the International Monetary Fund (IMF), inflation in the UAE, estimated at 11 per cent in 2007, is set to drop to 9 per cent in 2008. The IMF's forecast of an easing of inflation came as economists warned of a 3 per cent surge in inflation across the GCC in 2008. The rising inflation in the UAE is mainly due to a weakening US Dollar to which the UAE Dirham is pegged against. A Dirham-Dollar peg means the region has limited ways to control inflation as central banks follow the monetary policy of the United States, where the Federal Reserve has slashed interest rates since the global credit bubble popped last year.
"Inflation will continue to rise for years. Expected inflation in GCC countries is to add 2-3 points in 2008 above its level in 2007." 
Upon studying the current trend of inflation across the UAE, we observe that contrary to expectations, land prices have been steadily heading north instead of declining. The total value of land transactions in Dubai last year was US$12.94 billion, according to Land Department. Some 2,329 land plots were sold in Dubai during April-June this year with a combined value of US$7.74 billion as against US$2.94 billion for the same period in 2007. This reflects an overall rise in prices and demand for space across the emirate.
Inflation in the UAE is also
driven by increased consumer spending. However, according to Merrill Lynch, the consumer price index (CPI) in the UAE will slide to 8 per cent by the end of 2009 after scaling 12 per cent this year. Analysis by the Consumer Price Index Division of the Ministry of Economy, UAE, indicated that inflation in 2007 was a result of the rise of consumer prices in all expenditure groups at varying levels. The "House Rent and Related House Items" group recorded the highest increases amongst all groups at an increase of 17.5%, followed by "Other Goods and Services" at 16.8%. The increase in average prices of other expenditure groups ranged from 3% to 8%.
The inflation notwithstanding, the UAE economy is expected to experience a sustained growth with its nominal Gross Domestic Product (GDP) attaining 24.5 per cent growth - from US$192.6 billion in 2007 to reach US$239.9 billion in 2008, says Mohsin Khan, Director of IMF's Middle East and Central Asia Department (MCD). "Spiralling rents which account for more than 50 per cent of the consumer price inflation will soften with more residential units coming to the market." Merrill Lynch has predicted that the UAE's real gross domestic product is likely to decline to 6.1 per cent for the coming year after registering a rise to 6.4 per cent this year.
Reports from the Ministry of Economy reveal that the "House Rent and Related house Items" group was the main contributor towards the country's inflation, contributing 6.5% towards the total inflation figure of 11.1%, or about 58.6% of the total figure. The "Other Goods and Services" group followed (1.4% towards the total inflation figure of 11.1%, or about 12.8%). The contribution of other expenditure groups was less than 1%.
Thus, it may be concluded that the real estate industry in Dubai has been relatively untouched by ongoing inflation. The land sales in the emirate are expected to go up still further in coming months as the Dubai Strategic Plan 2015 gains momentum. The demand for space which is augmented by the developmental policies of the Government of Dubai is expected to hold strong in the future, thereby sustaining the realty boom well beyond 2012.
(Sources: Gowealthy Research Team, Ministry of Economy, UAE, Merrill Lynch, IMF)
