Oil Prices Make a Comeback; Now Buy Property in Dubai

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Crude-oil futures rallied well above $50 a barrel to settle at their highest levels of 2015 on Tuesday. Some analysts believe that oil prices bottomed out somewhere around $43. On the New York Mercantile Exchange, light, sweet crude futures for delivery in March settled up $3.48, or 7%, at $53.05. Brent crude for March delivery on London’s ICE futures exchange rose $3.16, or 5.8%, to $57.91 a barrel. Both global oil benchmarks have surged 19% over the last four sessions only.

Recovery in oil prices doesn’t affect directly Dubai property prices, but rather investors’ sentiment towards acquiring properties in Dubai as long term assets. During the past six months weakening oil prices and shrinking budgets of companies operating in the oil industry led many investors to tighten spending activities in Dubai. Western financial analysts projected a general weakening of the emerging markets and lowered Middle East’s prospects for high economic growth. Such predictions and news coverage discouraged investors from buying property in Dubai.

On the other hand, with demand and trading activity in the real estate market reduced to about 25% from the average of the past decade, many Dubai property owners rushed to sell their homes urged by rumours about new recession or bubble burst repetition of the past. As a consequence, the market is flooded with apartments and villas for sale, some priced very attractively, or even below their purchasing prices. In particular, prime properties have lost significant portions of their value. End-users able to obtain mortgages right now, definitely benefit from the current setup as they can find discounted larger homes with high-end fittings in well established districts.

Meanwhile, in some areas of Dubai such as the Downtown and DIFC, for example, rents continue to climb due to limited availability of units and stable demand. Declining property prices coupled with low mortgage interest rates, and increasing rents is a promising combination for good yield. For example, investors may now find a studio rented out for AED 80,000, but offered for sale for 1 million or even less, which spells a considerable return on investment. If you might be interested in such bargain hunting investment opportunities, email a district specialist here.

Oil prices will very much likely continue to increase in the coming months and stabilize until the end of the year somewhere between $70 and $80. A level above $130 in the coming years is not impossible to envision, considering the halt of the quantitative easing program in the U.S. and the propel of inflation. Measures taken by petroleum companies to cut spending may be considered an old news by now. With the growth of global population and its ever increasing consumption, the demand for oil looks guaranteed.

From another perspective, the development of Dubai as Middle East’s equivalent of New York, London and Singapore, not for a day was delayed. On the contrary, a 9% increased budget for government spending was approved in the beginning of 2015. Near term economic growth prospects remain robust as Dubai gears up for hosting World Expo 2020. A large number of new projects are already in the works, and they require more resources such as people and materials, which translates to increased pace of job creation and trade volumes.

In addition to the constantly improving tourists inflow, only in 2020, over 25 million tourists are expected to visit Dubai. A portion of them will ultimately fall in love with the dynamics of the city and relocate, buy holiday homes or at least recommend it as a unique destination to their social circles. Such activities will help sustain strng activity in the real estate market at least during the next decade.

1 COMMENT

  1. “Low oil prices and cheap money will lead to stronger global economic growth and much stronger oil demand than conventional wisdom would suggest.”

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