The recent weakening of the US dollar is coming out favourably for the UAE’s property market as residential and commercial properties in the UAE begin to seem less expensive to foreign investors whose currencies have risen against the US dollar.
It has been depreciating since mid-to-late last year and it is expected to continue to spiral downward as inflation in the US continues.
Headline annual consumer price inflation dropped to 3% in June, down from 4% in May and has continued to decrease since its peak at 9.1% in June 2022.
The Fed now aims to reduce inflation to its 2% target and has increased interest rates by a combined 500 basis points over the past 16 months, the highest since 2007 and shortly before the global financial crisis in 2008. The greenback in July was the lowest in more than a year. The US Dollar Index – a relative measure of the US dollars’ strength against a basket of six influential currencies which include Euro, Pound, Yen, Canadian Dollar, Swedish Korner and Swiss Franc, is now down by roughly 3.3% since the beginning of 2023 and is about 6.53% lower on an annual basis. With the UAE dirham pegged to the greenback, the weakening US dollar is resulting an increase in foreign property buyers in the UAE, analysts say.
“The dollar depreciation is largely playing in favour of foreign buyers of property in the UAE, who account for quite a significant portion of the buying community,” said Taimur Khan, head of Mena research at CBRE. “Particularly for currencies such as the euro and the pound, the dollar has dipped quite significantly over the past one year. The dollar has slipped around 8.4 per cent against the euro, and 6.7 per cent against the pound.”
It can be recollected that the UAE property market has been steadily recovering from the hard hit of the pandemic due to multiple government actions and initiatives such as residency permits for retirees and remote workers, as well as the move to expand the 10-year golden visa programme, the economic gains generated by Expo 2020 and higher oil prices.
The value of property deals in Abu Dhabi more than doubled during Q1 2023, while volume transactions (including property sales and mortgages) increased by 66%. Dubai residential real estate prices rose in June at the strongest pace since 2014, with demand continuing to rise. The average price for residential real estate rose by 16.9% on an annual basis, up from the initial 15.9% year on year from the date recorded in May, CBRE said in its Dubai Residential Market Snapshot Report. In addition, Dubai was crowned the world’s top market for $10 million homes, hitting $3.1 billion sales in the first half of 2023, passing Hong Kong and New York, according to Knight Frank.
While this weakening may be beneficial for European and British investors, it provides a different impact for Indian and American property buyers. The dollar has appreciated against the Indian rupee in the past one year, which affects Indian investors, who are among the major homebuyers in Dubai. “For an Indian rupee-denominated buyer buying a property in the UAE, it has in fact become 2.8 per cent more expensive in the past year,” Mr. Khan said.
“A year ago, one US dollar was equivalent to 80 Indian rupees, now it is hovering around 82 rupees to a dollar.” American buyers are also facing steeper costs, given that the prices of the properties have increased, and the dirham is pegged to the US dollar, Mr. Khan added. HP Aengaar, chief executive at Asteco warned buyers that they need to consider currency risks before making long-term investment decisions.
“Whilst a weaker dollar may provide immediate benefits, buyers should consider the long-term potential of the investment,” he said.