UAE economy resists global liquidity crisis

UAE economy resists global liquidity crisis

Investor sentiments dictate market trends and going by the latest reports, investors are bullish about the UAE economy and its real estate industry. The investor confidence in the market has been boosted by the AED 42 billion UAE Federal Budget 2008 that shows no deficit. The budgetary outlay for 2009, which allocates 5.1 per cent for infrastructure and 2.4 per cent for financial and fixed investments, signifies a growing economy, not beset with liquidity crunch.

Since the 2005 Federal Budget, the UAE's budgetary allocation has risen by over 100%. The total outlay of the current budget, which is the largest in the UAE’s history, is 21 per cent higher than last year’s AED34.9 billion. It contains provisions for a 70 per cent increase in the salaries of all federal employees, including civilians, military personnel and pensioners. Moreover, the new budget does not contain any new increase in the federal fees.

Despite the current economic gloom, banking sectors in the region generally remain sound with continued improvements in prudential indicators and strengthened banking supervision. The UAE has pumped a whopping AED 120 billion into its banking sector to allay fears of a financial meltdown. Buoyed by the budget and timely intervention by the Ministry of Finance, the UAE financial and real estate sectors are expected to expand, thereby sustaining the growth that commenced in the early 2000s. This sentiment is echoed by local and foreign investors, who have expressed utmost faith in the economy and the market.

The country is all set defy the prevailing global economic gloom and outdo all other regions, in terms of capital funds and developmental activity, according to the Investor Sentiment Survey conducted by Jones Lang LaSalle in association with Cityscape Dubai, the world's largest real estate conference and exhibition.

Undertaken in the aftermath of the collapse of US Investment Bank, Lehman Brothers, the 2008 Investor Sentiment Survey was based on interviews with over 350 developers, sovereign wealth funds and high net worth investors.

Over 50% of the respondents to the Investor Sentiment Survey 2008 believed the Middle Eastern real estate markets, led by the UAE will see the strongest performance of any region worldwide over the next 1-2 years. Investors are least positive towards Western European real estate markets, with only 3% expecting this to be the strongest performing region.

The Middle East is expected to be one of the regions least affected by current global economic conditions. Effects most obviously are felt in North America but this could also provide most opportunities for value purchases over the next 12 -24 months.

Commenting on the survey's findings, Ian Ohan, Head, Investment Transactions, MENA at Jones Lang LaSalle said: "The Gulf Region offers strong relative international value with active buyers in the region generally looking to transact at 8 - 8.5% yields for prime commercial operating assets and slightly higher for hospitality product.”

There is a clear inverse relationship between strongest performing real estate markets and those economies expected to be most affected by current global economic environment with studies showing that the emerging markets in MENA, Asia-Pacific and Eastern Europe will be least affected by the economic crisis. According to the survey, the Middle Eastern investors are well-positioned to take advantage of difficult conditions elsewhere. It is a good time for Middle Eastern investors to export capital through purchase of overseas assets. Almost half the respondents (45%) suggested Middle Eastern investors stand to benefit the most through their ability to export capital.

Over 40% of investors stated that the current global economic climate is having little or no impact on their approach towards real estate investment in the Middle East. Over 60% of investors are optimistic that global capital markets will either remain the same or improve over the next 1 - 2 years.